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Milan Vaishnav
Milan Vaishnav, Financial Advisor
Category: Finance
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Experience:  Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
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What is the accounting entry to set up a 457(f)..(Deferred

Customer Question

What is the accounting entry to set up a 457(f)..(Deferred Compensation Plan) account
The employer OWNS the account.....................so...........

Dr 457 Annuity Purchased
   Cr Cash
BUT!
The liabilty (deferred compensation)"owed" to the employee later on is the entry I'm confused on

Dr. ???
    Cr Liability for Deferred Compensation Account
Submitted: 7 years ago.
Category: Finance
Expert:  Milan Vaishnav replied 7 years ago.

Dear Friend,

 

I presume you are setting up a 457(f) account for you employee and a employee contributes it from his salary.

 

The entry would be --- when salary is paid, (the figures mentioned are just illustrations)

 

Salary account DR 120 $

TO Cash / Bank 100$

TO 457(f) A/c 20$

 

This way the salary entry is complete and the 457(f) stands in credit of $ 20.

 

When this needs to be setteled / paid in future, the entry would be

457(f) A/c DR $20

TO Bank / Cash A/c $20

 

This would complete the transaction.

 

I hope the above helps...

Regards,

 

 

Customer: replied 7 years ago.

Actually no---the employee is not deferring income from his salary (paycheck) but rather the employer is purchasing upfront an annuity and the earnings on this annuity (deposit) years down the road is provided to the employee (at retirement) and the original deposit reverts back to the employer So while I understand that the entry (entries) on a monthly (or quarterly ??) basis for interest (or investment earnings) received on the annuity would be:

 

Dr. Annuity Purcahsed (457(f) Account)

Cr Liabilty for Deferred Account ( 457(f) ) "earnings"...............

 

My question (concern) is....is there an INITIAL entry that needs to be set up for this future liabilty (the payout of accrued earnings through the years) ..SINCE..SINCE the EMPLOYER actually owns the annuity and NOT the employee like in a "normal" salary deferral situation (as you illustrated) ..(ie. 401K deferrals, 457 (b) deferrals, etc)

Expert:  Milan Vaishnav replied 7 years ago.

Dear Friend,

 

I understand now.

 

The intial entry should be as under:

(Here again the figures are for illustration purpose only)

 

When you purchase the annuity,

 

457(f) Annuity Purchased A/c DR $100

Interest Accrued (PAYABLE) A/c DR $20 (Interest that will be payable in the future)

TO Bank/Cash A/c $120

 

This will complete the entry in your books with the interest accured entered in the beginning.

 

I hope the above helps...

Regards,

 

 

Milan Vaishnav and other Finance Specialists are ready to help you
Customer: replied 7 years ago.
Okay.....I think this may help--not sure though...... as I'm not sure I'll be remitting ALL the funds (the deposit AND (accrued) interest---since the "interest" (to be earned over 15 years ) is an unknown amount--thus I think we will only be remitting the deposit amount which again would be the DR to Annuity Purcahsed and a CR to Cash--But, I'll have to see what we actually get "billed" for -- either the deposit amount alone or the deposit plus an accrued interest ("benefit") payable to the employee at retirement.
Expert:  Milan Vaishnav replied 7 years ago.

Dear Friend,

 

This should help. However, if you have any other pattern of transaction, you can describe here in paragraph and I shall put the entry for you.

 

Never hesistate to get back to me anytime...

 

Regards,

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