Modelling Leave Provisions

A choice of 2 methods

There are 2 ways to model staff leave provisions like annual leave and long service leave in Castaway:

  1. Using a modified Costs element (our preference)
  2. Using a Provisions element

Although both methods end up with the same numbers in the P&L, Balance Sheet and Cashflow reports, we favour the first method because it gives more flexibility in positioning the provision expense line in the Profit & Loss. 

Because the first method involves a Costs element, you can position the provision expense line under any Direct Costs, Overheads, Other Expenses or Non Operating Expense section heading.  The second method can only show the provision expenses in the Other Expense section of the Profit & Loss.

Method 1: Using a modified Costs element

  1. Add a Costs element under the Overheads heading (or any of the other eligible section headings (Direct Costs, Other Expenses or Non-Operating Expenses)
  2. Double click on the element name to go into the Data Entry screen
  3. Click the Costs button to open the Element Properties dialog box
  4. From the Costs tab, set the Invoicing Method to ‘Enter Accrued Invoices’
  5. From the Settings tab, change the GST Rate to 0% and set Accrual Reporting to ‘Separately as Current Provision’
  6. Click OK to close the Element Properties dialog box
  7. Add say $5,000 per month to the Enter Expense line.  Note that the Cash Payments line shows $0 each month and the Accrual/Provision balance grows (so we’ve successfully created a non-cash expense)
  8. Enter $13,000 in the Enter Invoice line for December (we’re assuming here that we’ll make a large cash payment to staff as they take leave)
  9. Click Save & Close to return to the main screen
  10. Review the Profit & Loss Report, the Balance Sheet and the Cash flow Statement to confirm the numbers appear as you would expect

 Method 2: Using a Provisions element

  1. Add a Provisions element under the Current Liabilities heading
  2. Click the Account Type button to open the Element Properties dialog box
  3. From the Account Type tab, set the account type to ‘Staff’
  4. From the New Provision tab, set the Provision Movement Option to ’Enter Provision’
  5. From the Write Off tab, set the Write Off Method to ‘Enter Write Off’
  6. From the Settings tab, ensure the Balance Sheet Location is set to ‘Current Liability’
  7. Add say $5,000 per month to the Enter Provision line
  8. Enter $13,000 in the Enter Write Off line for December (we’re assuming here that we’ll make a large cash payment to staff as they take leave)
  9. Click Save & Close to return to the main screen
  10. Review the Profit & Loss Report, the Balance Sheet and the Cash flow Statement to confirm the numbers appear as you would expect

 

Download a sample file to compare the 2 methods here: 

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