Accounting for Defined Contribution Plans

Pension expense (typically buried within the SG&A category) is created on the income statement. The balance sheet entries (in order to make the balance sheet balance) appear in one of the following forms:

• A liability, if a company is yet to make its contribution

• Cash, if the contribution has been made

12. Lemonade Stand

Exercise Q1: Recall that during 2005, the lemonade stand recorded SG&A expense of $15 on its income statement. Let’s assume that $5 consisted of pension expense (stemming from a company’s defined contribution plan), and the company made a cash contribution. Based on the information, create the appropriate T-account for the transaction.

12. Lemonade Stand

Solution 1:   Debit Credit Pension expense (SE) 5   Cash (A)   5