- Created by admin, last modified by AdrianC on May 19, 2016
AccountEdge Pro and Network Edition, Australia only
Many businesses want their employees' Holiday Leave, Sick Leave and Long Service Leave to accrue in dollar terms in their general ledger payable accounts. These accounts are commonly known as leave provisions and reflect the monetary liability you have for leave owing to your employees.
If you need to do this, here's how:
These accounts must be created for you to use when recording the journal entries described later in this support note. A liability account and matching expense account must be created for each accrual you want to show as a liability. If you're unsure about which accounts to create, refer to your accounting advisor.
- Go to the Accounts command centre and click Accounts List then click the Liabilities tab.
- Click New and enter the new number for the account and press tab.
- Give the account an appropriate name such as Provision for Holiday Leave.
- Enter any optional details in the other tabs.
- Click OK.
- Click the Expenses tab and using the above steps create the related expense account.
- Repeat for any other liability and expense accounts for other leave such as Provision for Sick Leave Accrual.
- Go to the Payroll command centre and click Payroll Categories.
- Click the Wages tab.
- Click the zoom arrow beside the Holiday Pay wage category to display the Wages Information window.
- Select the Override Employees' Wage Expense Account option.
- In the Override Account field and select the appropriate account. If you choose a liability account, a warning will appear advising that the linked account should be an expense account. Disregard the warning. See our example below.
- Repeat for all other wage categories that you want to show as a liability, such as Sick Pay.
If you are unsure which account to choose, please refer to your accounting advisor.
To view the current dollar value of your existing accrued leave balances run the Entitlement Balance Summary.
- Go to the Reports menu and choose Index to Reports.
- Click the Payroll tab.
- Under the Entitlements heading, select BalanceSummary.
- Click Customise.
- Select the applicable Employees.
- In the Dated From and To fields, specify the period for the report. This should be from the start of the current financial year up to the current date.
- In the Finishing tab, select a Sort by option - either Employee or Entitlement.
- Click Display. A sample of the report is shown below.
To record your liability for the first time:
- From the Entitlement Balance [Summary] report printed or displayed, obtain the dollar amounts you want to record as your liability.
- Go to the Accounts command centre and click Record Journal Entry.
- For positive balances (leave owed to the employee), select the expense account for the leave expense and enter the dollar value of the accrual as a debit. The tax code would normally be N-T. Select the liability account for the leave liability and enter the dollar value the accrual as a credit. The tax code would normally be N-T.
- For negative balances, select the leave liability account for debit amounts and the expense account for the credit amount.
- Click Record.
Since these balances may be attributable to prior year(s) accruals, you may choose to apportion part of the value to retained earnings. If you are uncertain about which accounts to use, please refer to your accounting advisor.
You can regularly update the monetary value of your leave accrual liabilities. For example, if you want to update the liabilities each month you will need to run the Entitlement Balance Summary report filtered for the specific month in question. Do this once you have completed all payroll transactions for that month. Note that the report will need to be dated from the last time you recorded a journal entry to update the accrued liabilities, up to the current date.
The value shown in the report will be the current entitlement balance, so you will need to subtract the previously reported entitlement balance value to determine the value of the accrued leave for the reported period.
Example: The last time you completed this process an employee's accrued leave value was $2500. The following month when you run the Entitlement Balance Summary report, the employee's accrued leave value is $2602.98.
$2602.98 - $2500=$102.98.
This means the value of the accrual liability for this employee needs to be increased by $102.98.
The journal shown here will increase the value of the leave accrual liability by $102.98.
To decrease the value of the leave accrual liability, you would debit the liability account and credit the expense account.
Note that in relation to Annual Leave, if you want to make provision for Leave Loading you would simply increase the values by the applicable leave loading percentage.