Impact of Defined Contribution Plan on Financial Statements

Medium Employee Compensation Defined Contribution Plans

A defined contribution plan is a retirement plan where the employer, employee, or both make contributions on a regular basis, and the final benefits received are based on the investment performance of those contributions. As an analyst, you are researching the accounting standards related to defined contribution plans.

Assuming a company has made a contribution of $100,000 to its defined contribution plan during the year, what is the impact of this contribution on the company's financial statements?

The contribution increases both expenses and liabilities by $100,000.

The contribution increases expenses by $100,000 and does not affect liabilities.

The contribution does not affect the income statement but increases assets by $100,000.

Hint

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