Which term is commonly used in financial accounting to describe benefits such as health insurance and vacation time provided to employees?

• A. Fringe benefits
• B. Deferred revenue
• C. Operating expenses
• D. Direct compensation

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'fringe benefits': These are additional benefits provided to employees beyond their direct compensation, such as health insurance, vacation time, retirement plans, and other perks.
2. Review the other terms provided in the options: 'Deferred revenue' refers to income received before goods or services are delivered, 'Operating expenses' are costs incurred in the normal course of business operations, and 'Direct compensation' refers to wages or salaries paid directly to employees.
3. Compare the definition of 'fringe benefits' with the benefits described in the question, such as health insurance and vacation time, to determine the most appropriate term.
4. Eliminate the incorrect options by matching their definitions to the context of the question. For example, 'Deferred revenue' and 'Operating expenses' are unrelated to employee benefits, and 'Direct compensation' does not include additional perks like health insurance.
5. Conclude that the correct term to describe benefits such as health insurance and vacation time provided to employees is 'Fringe benefits'.