I have created an entry in chart of accounts on BS (balance sheet) side as “Provision for Gratuity” as a ling term gratuity account. On P&L side I created an account as “Gratuity expense”
I have created a journal entry for the 2024 gratuity as debt form the expense and credit to the liability. as shown in the exibit.
I have also created a pay slip item, PAY slip earning item called End of Service (EOS) so that when employees leave we can add them into their pay slip. and it can reflect the change in the liabilities.
The Problem I am facing, is the in the pay slip earning item I am getting this as an expense not as a liabilities item. at the same time I can see the liability account in the Pay slip deduction item
Is this an error or am I missing some point ?
Chatbot Reply
Your approach aligns well with standard accounting practices for handling gratuity (end-of-service benefits):
Chart of Accounts Setup:
“Provision for Gratuity” as a liability on the Balance Sheet is correct. This account accumulates the company’s obligation to pay gratuity.
“Gratuity expense” on the Profit & Loss Statement records the annual expense recognized for gratuity.
Journal Entry:
Debiting “Gratuity expense” and crediting “Provision for Gratuity” for the annual gratuity amount is the correct way to recognize the expense and increase the liability.
Pay Slip Earning Item (EOS):
Creating an earning item called “End of Service (EOS)” allows you to process gratuity payments through payroll when employees leave. When you add this to a departing employee’s pay slip, it will reduce the “Provision for Gratuity” liability and record the payment.
Additional Tips:
When an employee leaves and you pay out their gratuity, you should create a journal entry or use the pay slip to debit “Provision for Gratuity” (reducing the liability) and credit the relevant cash/bank account (reflecting the payment).
Ensure that your pay slip configuration in Manager.io is set up so that EOS payments are mapped to reduce the “Provision for Gratuity” account.
If you need step-by-step instructions on how to link the pay slip earning item to the provision account or how to process the final payment, please let me know!
@Syed_Salman_Ali The problem I am facing is when you add EOS as Pay slip Earning item, it list only the Gratuity expense rather than Provision for Gratuity.
Also when you do a Pay Slip deduction, we can see the drop down as Gratuity Provision.
Is this exchanged by mistake ?
you can test this by adding a payslip earning item and the drop down shows this.
Enable special accounts, Create “employee advances” account under control account and then add employee names in special accounts and link them to the control account.
I think Payslip - Lines and related Payslip Items need an overhaul.
I say this for many reasons:
Unlike other tabs, there’s no Payslip - Lines view
Alhough the recommended approach for employee loans and other accounts like gratuity is to use Special Accounts. These still don’t play nicely with Payslips.
I think a loose structure could be allowed for some accounts to enable Employee selection. These accounts could later be referenced by Payslips as if they were Control Accounts composed of Employees.
I will place this in ideas and I hope the developer likes it.
