Pension Obligation PBO

Definition: PV of earned defined benefit plan benefits

Scope:ModerateDifficulty:Very Difficult

PV of earned defined benefit plan benefits

Common Journal Entries
AccountDebitCredit
1. Record pension expense
Annual pension cost is $12,000.
Pension ExpenseExpense+$12,000
Pension Liability$12,000
Obligation to employees recognized.
2. Make contribution to plan
Contribute $10,000 to pension fund.
Pension Liability$10,000
CashAsset−$10,000
Liability reduced; underfunded by $2,000.

T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.

Pension ExpensePension ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$12,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$12,000.00
Pension LiabilityPension LiabilityAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$10,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$12,000.00
$2,000.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,000.00
$10,000.00
DurationLong-Term

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