Retro journal entries for EOS and vacation accrual

The Jisr system allows users to automatically adjust settlements when the option "Enable Adjusting Entries for EOS & Vacation Accruals on salary Appraisal" is enabled.

The system automatically recalculates and adjusts an employee's end-of-service and vacation settlement when their salary is increased.

Why? These settlements are often linked to the employee's base salary. If the salary increases, the expected amount of the end-of-service or the value of accrued vacation may also increase.

Practical example:

An employee was hired on 1/1. Each month, the employee's vacation accrual increases by 100. By the end of the year, the employee is entitled to 1200. However, if their salary is increased in July, and the vacation accrual is also increased to 300, the total should increase to 3600.

Monthly Accrual Entry (from January to June)

During this period, the vacation provision is accrued based on the old value (100 per month).

Monthly Journal Entry:

Account	Debit	Credit
Vacation Expense	100
Accrued Vacation Provision		100

Debit Vacation Expense 100

Credit Accrued Vacation Provision 100 

Explanation: To record the monthly vacation expense accrued for the employee.

This entry will be repeated 6 times (from January to June).

Total Expense: 100×6=600

Provision Balance: 600.

Journal Entries in July

In July, two important accounting events occur:

A. Retroactive Adjustment Entry

In this month, the increase in the provision for the previous period (from January to June) is recorded retroactively.

New Accrual Value: 300 per month.

Total Accrual for the Previous Period: 300×6=1800

Current Provision Balance: 600.

Required Adjustment Value: 1800−600=1200

Journal Entry for the Provision Adjustment in July:

Account	Debit	Credit
Vacation Expense - Retroactive Adjustment	1200
Accrued Vacation Provision		1200

Explanation: To adjust the accrued vacation provision for the period from 1/1 to 30/6 due to a salary increase.

B. New Monthly Accrual Entry

In the same month (July), the monthly accrual entry is recorded based on the new value (300).

Monthly Journal Entry in July:

Account	Debit	Credit
Vacation Expense	300
Accrued Vacation Provision		300

Explanation: To record the monthly vacation expense accrued based on the new salary.

Subsequent Journal Entries (from August to December)

From August onwards, the monthly accrual entry continues to be recorded based on the new value (300).

Monthly Journal Entry:

Account	Debit	Credit
Vacation Expense	300
Accrued Vacation Provision		300

Explanation: To record the monthly vacation expense based on the new salary.

The importance of this option:

• Accounting accuracy: Ensures that the amounts allocated for end-of-service benefits and vacation pay in the company's accounting records always reflect its current obligations based on employees' updated salaries.
• Compliance: Helps companies comply with laws and regulations related to end-of-service benefits and vacation pay, which often require accurate accounting of these benefits.