Accounting for Annual Leave Liability

Pinkjo

Hi there, I "do" the accounts for a recruitment agency, and have been asked to (now) account for annual leave liability. When I do the normal temps payroll journal I do the following journal.

Dr 6000 Temps Salary
Dr 6200 Temps Social Security
Dr 6300 Temps Holiday Pay
Cr 2210 PAYE/NI
Cr 2220 Net Wages

I'm assuming I need to set up another nominal code called "Annual Leave Liabiity" this will basically be the holiday pay the temps have accrued; am I right in thinking this will have to be a liability account?

I'll get a print out of how much holiday pay we owe the temps weekly, so I'll need to do a journal, but I can't think for the life of me, how I'll do this without upsetting the journal that I already do. :001_unsure:

DR ????
CR Annual leave Liability????

Aaargh - please help me :001_smile:

Pinkjo

I think maybe I'm over complicating it :001_unsure:

My blonde brain has so far come up with this:

Set up an Annual Leave Liability account on Sage as a current liability account, with the category being net wages or accrual?? Anyway I'll need to enter a credit opening balance (being the amount of outstanding holiday pay at present) then the journals that need to be posted weekly will be:

DR Holidays Paid
CR Holidays Earned

Can someone lovely tell me whether I have worked this out right?

Many thanks

oakley

You have worked this out right, cr the balance sheet accrual and debit a profit and loss pay code for the holidays earned not yet taken. Keep it seperate from your payroll journal and treat it only as an acrrual.

Pinkjo

So the balance outstanding will show as an expense on the P&L and a liability on the balance sheet?

Timmne

Correct - just think of it like any other accrual and you'll be good to go.

Remember at the end of the holiday year to zero it as the temps won't be able to take any more of this unused entitlement!