Promises to pay employees pensions after they retire are difficult to identify and value and therefore need not be recognized in the financial statements until cash payment is made.

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Promises to pay employees pensions are generally recognized as a liability on the balance sheet and as an expense on the income statement. Accounting standards require companies to estimate the present value of the future pension payments and recognize the liability and expense over the employees' expected years of service. Failure to recognize these obligations can result in misleading financial statements.

Promises to Pay Employees Pensions After They Retire Are Difficult