Is it a normal accounting practice to have a vacation accrual charge debited to your bottom line for the following year. We did year end closing and our new corp. owners hit us with a 180K debit for vacation accrual for 2016. Since I am not an accountant I am not familiar with this. Basically we are takinh a hit to our btoom line for the vacations pay for employees for 2106. Is this common or are we getting duped?

It doesnt sound right because the vacation time hasnt been taken yet. If there were any pay changes then it also would have to be accounted for. It sounds like they for tax purposes are trying to reduce their bottom line.

The matching process in accounting brings to account costs which have been incurred in the current year such as vacation pay entitlements but won't be paid until a later period. This is usually called accrual accounting and brings to account a wide variety of costs not just those associated with labour. If this was not done there would be distortions and manipulations in reported earnings and stakeholders would not have a clear view of liabilities. Assessment of taxation isn't the issue since there may be adjustments for what is allowed for tax purposes.

Accounting thought is centered around what is is called a true and fair view of the affairs of the entity and to ignore such liabilities does not present a true or fair view. You can account on a cash basis but this presents a distorted view of the equities and in some cases may result in an excess distribution of earnings