Journal Entry for Gratuity

Journal Entry for Gratuity

In this article we would explain the journal entry for Gratuity contribution. Gratuity is an employee a retirement benefit. The employer makes annual contribution to gratuity fund account.

The gratuity contribution is an expense for the organization. Thus on one side the expenses is charged and on other side the liability payable to employee is created by the following entry

Date	Particulars	Dr	Cr
	Gratuity Expense A/c	XXX
	Gratuity Payable		XXX

Journal Entry for Fund Transfer

The amount equal to gratuity expenses is transferred to separate bank account maintained for the purposes. Thus a fund from operation account is transferred to Gratuity Bank Account.

Date	Particulars	Dr	Cr
	Gratuity Bank A/c	XXX
	Operational Bank		XXX

Gratuity Payment Journal Entry

When gratuity is paid to an employee, then liability is decreased and Gratuity bank account also decreased due to payment. The following entry would be recorded.

Date	Particulars	Dr	Cr
	Gratuity Payable A/c	XXX
	Gratuity Banks A/c		XXX

Some companies do not maintain separate account for gratuity and simply create a liability and pay the employee from the operational account. Thus employer just account for liability at the end of each year.