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| Corporate Practice bd |
Accounting Treatment of Provident Fund -With Examples
The provident fund (PF) is a retirement savings scheme where both the employer and the employee contribute a portion of the employee’s salary. The accounting entries for provident fund transactions include contributions, interest accruals, and payments. Here’s a breakdown of the accounting entries with practical examples:
Contributions to Provident Fund
01.Employee Contribution
When the employee’s contribution to the provident fund is deducted from their salary, the entry is:
Journal Entry:
Employee's Salary Account Dr
To Provident Fund Payable Account
Example:
If an employee’s monthly salary is Tk. 50,000 and their contribution to the PF is 12% of the salary (Tk. 6,000), the entry would be:
Journal Entry:
Employee's Salary Account 6,000 Dr
To Provident Fund Payable Account 6,000
2. Employer Contribution:
The employer’s contribution to the provident fund is also recorded:
Journal Entry:
Provident Fund Expense Account Dr
To Provident Fund Payable Account
Example:
If the employer’s contribution is 12% of the employee’s salary (Tk. 6,000), the entry would be:
Journal Entry:
Provident Fund Expense Account 6,000 Dr
To Provident Fund Payable Account 6,000
03.Payment of Provident Fund Contributions
When both the employee’s and employer’s contributions are transferred to the provident fund:
Journal Entry:
Provident Fund Payable Account Dr
To Bank Account
Example:
The total contribution (Tk. 12,000) is transferred to the provident fund:
Journal Entry:
Provident Fund Payable Account 12,000 Dr
To Bank Account 12,000
04.Interest Accrual on Provident Fund
Interest accrued on the provident fund balance is recorded as an expense and payable to the provident fund account:
Journal Entry:
Interest Expense Account Dr
To Provident Fund Payable Account
Example:
If interest accrued on the provident fund for a year is Tk. 5,000, the entry would be:
Journal Entry:
Interest Expense Account 5,000 Dr
To Provident Fund Payable Account 5,000
05.Payment of Provident Fund on Employee's Resignation/Retirement
When an employee resigns or retires, the provident fund amount is paid to them:
Journal Entry:
Provident Fund Payable Account Dr
To Bank Account
Example:
If the total provident fund payable to an employee at the time of resignation is Tk. 100,000, the entry would be:
Journal Entry:
Provident Fund Payable Account 100,000 Dr
To Bank Account 100,000
Summary of Accounting Entries
1.Employee Contribution Deduction:
Employee's Salary Account Dr
To Provident Fund Payable Account
02.Employer Contribution:
Provident Fund Expense Account Dr
To Provident Fund Payable Account
03.Payment to Provident Fund:
Provident Fund Payable Account Dr
To Bank Account
04.Interest Accrual:
Interest Expense Account Dr
To Provident Fund Payable Account
05.Payment on Resignation/Retirement:
Provident Fund Payable Account Dr
To Bank Account
These entries ensure that the provident fund contributions, expenses, and payouts are accurately recorded in the financial statements.