What portion of an employer's liability for compensated absences should be reported as an expenditure in a governmental fund?

The answer is focused on the portion of the leave balance that represents an obligation to employees who are no longer with the organization at the end of the fiscal year. When employees separate from service, any accrued compensated absences that are payable to these employees become liabilities for the employer. Reporting this amount as an expenditure in the governmental fund is necessary because it reflects the actual financial obligation that must be settled.

In governmental accounting, it is standard practice to recognize expenditures when they are incurred, which includes the obligations from compensated absences for employees who have separated from service. This recognition ensures that financial statements provide a clear picture of liabilities and the true costs of compensation incurred during the fiscal period.

Other factors such as the availability period or the expected payout within one year are relevant for recognizing obligations that are still with current employees and can vary in different contexts. However, the key point is that separated employees represent an unconditional obligation, making this portion critical for accurate reporting in the governmental fund's financial statements. This is why the thought process behind recognizing the liability for separated employees specifically aligns with the principles of governmental fund reporting.