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Guest

Guest (Querist)

10 June 2014 In chapter of employee stock option plan there is journal entry regarding expense in respect of ESOP recognised during the year

employee compensation expense a/c ...DR
employee stock option outstanding A/C

my query is why employee stock option outstanding is credited ?

Nikhil Kaushik

Nikhil Kaushik (Expert)

11 June 2014 the idea to debit the employee compensation a/c in the respective year is to follow the matching principle and allow for expense to be booked in the relevant year. However, the stocks are to allotted in a future year.

So to accumulate balance against which shares are to be issued, the credit part is parked to employee stock option o/s A/c. So this act as the company's liability towards its employees against which shares to be issued in future.

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