How should a city record the use of vacation hours when an employee uses 20 hours?

In governmental accounting, when an employee takes vacation hours, it's important to recognize the expense appropriately. The correct approach involves debiting vacation pay expenditure, which reflects the outflow of resources related to the employee’s vacation hours. This entry represents the cost to the city of allowing an employee to use their vacation time.

Simultaneously, crediting wages payable accounts for the business's liability to pay this amount. When vacation time is taken, the liability associated with accrued vacation payment diminishes because the employee is now using that time instead of it being an accrued future liability. Thus, this method accurately represents the financial transaction by recognizing the expense incurred while adjusting liabilities appropriately. This ensures the financial statements reflect the current state of obligations and expenses for the period accurately.