Gratuity and Retirement Benefits
Also called: Gratuity Expense, Provident Fund Expense
The yearly cost of gratuity, provident fund and other retirement benefits earned by staff, on the Profit and Loss statement.
In detail
This ledger carries the cost of the retirement benefits staff earn each month under the Labour Act 2074: gratuity at 8.33 percent of basic salary, the employer's share of provident fund or Social Security Fund contributions, and leave encashment. The cost is recognised in the month the service is given, by a Journal Entry that debits this ledger and credits Liability for Employee Benefits - Non-Current, or the fund payable when contributions are paid monthly. The expense is deductible for income tax only when actually contributed to an approved fund, so the auditor tracks the difference. Waiting to book gratuity until an employee leaves pushes years of cost into one period and understates every earlier year.
Formula
Monthly gratuity accrual = Basic salary x 8.33 percent; employer SSF contribution = Basic salary x 20 percent
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Gratuity and Retirement Benefits | Rs 12,500 | |
| Liability for Employee Benefits - Non-Current | Rs 12,500 |
How to record it in BRAccount
- 01Compute the month's gratuity and fund contributions from the payroll sheet.
- 02Go to Invoicing > Journal Entry > New dated the month end.
- 03Debit Gratuity and Retirement Benefits and credit Liability for Employee Benefits - Non-Current, or the fund payable.
- 04Submit. The entry below posts.
- 05When the fund contribution is paid, post a Journal Entry: Dr the liability, Cr Bank.
- 06Reconcile the year's accrual with the payroll register at Ashadh end.
When to use it
Post by Journal Entry monthly or at year end, with the other side in Liability for Employee Benefits - Non-Current or Current.
Example from the demo books
Dr Gratuity and Retirement Benefits Rs 12,500, Cr Liability for Employee Benefits - Non-Current Rs 12,500 for the monthly 8.33 percent gratuity accrual.