If a company does not create the leaves reserve, it can lead to serious mistakes. Thus, the rate of expenses will beoverestimated due to uncreated reserve in some months of the year (or in certain years). How should the leaves reserve be reflected in the accounting?
In accounting, the size of the created leaves reserve is recognized as expenses (paragraph seventh of sec. 13 of Accounting Standards 11).
Its creation should be reflected under a sub-account credit 471 “Provision of leaves payments” debited to accounts 23, 91, 92, 93 or 94. This is the way how the Ministry of Finance recommends to reflect the leaves reserve in accounting (letter dated May 24, 2007, No. 31-34000-10 -10/10654).
The leaves reserve is fully included in the cost during its accrual (that is, monthly) without waiting for the real use of the reserve.
When the accrual of the leaves, the amount of compensation for unused vacation in case of dismissal, as well as the USC for these amounts, the amount of the accrued leaves reserve gradually decreases. Consequently, during the accrual of leave allowance, the following posting to be carried out:
– Dr 471 – Cr 661 - for the amount of accrued leave allowances or compensation for unused leave;
– Dr 471 – Cr 651 - for the amount of USC, accrued on leave allowances or compensation.
The reserve could be used only within the limits of the accrued amount. In other words, only a credit balance should be under sub-account 471. The debit balance should not occur. Amounts of leave allowances and USC accrued on them, for which there was insufficient reserve accrued in the beginning of the month, are directly attributed to the expenses of the reporting period. Consequently, the amount of excess of the accrued leave allowances over the size of the created reserve should be attributed by the company to the expense of the period by the record: Dr 23, 91, 92, 93, 94 - Cr 661, 651.
It should be also remembered about the inventory of leave reserves. If, as a result of the inventory, it turns out that the employee used less (more) days of leave than planned, the company should adjust the reserve amount accrued. This should be done:
– in the direction of increase - by posting Dr 23, 91, 92, 93, 94 - Cr 471;
– in the direction of decrease - by the method of “red-ink entry”: Dr 23, 91, 92, 93, 94 - Cr 471 or by direct posting Dr 471 - Cr 719.
