Protech Inc, provides its employees with varying amounts of vacation per year, depending on the length of employment

Answer: No effect on the statement of cash flows; No effect on assets; Increase in liabilities of $36,000; Decrease in stockholder's equity of -$36,000; Income statement decreased by -$36,000

Explanation:

The monthly accrual for vacation pay is calculated as:

Yearly vacation pay / 12 months

$432,000 / 12 = $36,000

The monthly journal entry that would be recorded for this accrual would be an increase in vacation expense (debit) and an increase in vacation payable (liability). The journal entry is presented below:

This does not affect cash flows or assets. Liabilities increased since vacation payable was increased. Stockholder's equity is decreased as a result of the expense being recorded. The income statement decreased as a result of the expense being recorded. The accrual of vacation pay represents vacation earned by employees but not paid by companies. Lastly, once the employees take the earned vacation pay Protech Inc. will reduce the liability account and reduce cash.