Accounts and Finance

" Companies with defined benefit plans guarantee their employees certain amounts of benefits in the future. There is usually a defined time difference between when the workers receive their future payments and when they actually earn these benefits since the pension payments are made later in the future. As a result, these companies ought to use the accrual basis of accounting.

The following are required for defined benefit plans:

1. Define the fair value of both the assets & liabilities of the plan (at the end of the year)

2. Compute the amount of pension expense to be reported on the income statements

3. On fair value basis, estimate the value the net asset/liability position of the pension plan"