Tracking Leave Accruals as Liabilities
Hi All,
I have been asked to set up our leave accuals as liabilities.
Reading the following link:
Is it necessary to change the following in red ????
- Go to the Payroll command centre and click Payroll Categories.
- In the Wages tab, click the zoom arrow beside the Holiday Pay wage category. The Wages Information window appears.
- If you report payroll information to the ATO through Single Touch Payroll, select the applicable ATO Reporting Category. Typically this will be the same ATO Reporting Category you've selected for your Base Hourly or Base Salary wage categories. Learn more about assigning ATO reporting categories for Single Touch Payroll reporting.
- Select the Override Employees' Wage Expense Account option.
- Click the drop-down arrow beside 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.
Rather can I just leave it in the wage expense account.
Hi Jen65
As has been indicated, overriding that wage expense account on the linked wage categories is recommended as it will reduce the balance of that liability account when that leave is paid out. As this does reflect what is happened in real life i.e. paying that leave out as reduced the liability of the business.
A real-world example would be to say my leave liability sits at $200. My employee is being paid $20 an hour for 8 hours of annual leave ($160). If I pay that out to the leave, my liability is reduced 160. When you have that override option set up it will automatically reduce that liability to be $40 after the pay. If it wasn't set up it would remain at $200 even though I have paid it out.Now, in theory, you don't have to override that expense account and rely solely on journal entries to manage the leave liability. However, it's not the best practice as it doesn't accurately reflect that leave liability in real-time as you could have paid it out but not updated the leave liability account.
You also mentioned annual leave and long service leave is one amount. There is nothing stopping the user from setting it up like this or with multiple setups one for each leave type. It's solely how you wish to capture that information and report on it.
