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Wednesday, September 3, 2014

What is Vacation Pay

Vacation pay is the pay during the time of vacation. Employee will not work but still he will get pay for this.  In any company, there are two types of leave which any employee can take. One is paid vacation and other is without paid vacation. Different companies may make different rules regarding vacation pay which any employee should follow.

Calculation of Vacation Pay

Vacation pay is calculated some percentage on the salary or wages. Following amounts will include in salary or wages for vacation pay calculation purpose.


  1. regular salary or wages
  2. commissions to employees
  3. bonuses and monetary gifts 
  4. public holiday pay
  5. allowances for room or board
  6. termination pay

But we do not include the gratuities, travelling expenses allowance and contribution by employee in provident fund.


Accounting Treatment o Vacation Pay

Because vacation pay is the expense of company, so Vacation pay expense will be debit and Bank account will be credit. If whole one year's vacation pay is still payable. Liability account will be open to send this liability to next financial year. At that time, following entry will be passed

Vocation Pay account Debit

Vocation Pay Payable Account Credit

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