Accounting treatment of gratuity

This discussion clarifies the accounting treatment for gratuity, a payment legally due to employees under the Gratuity Act 1972. It explains that gratuity is typically calculated based on the employee's last drawn salary, considering basic salary, dearness allowance, completed years of service, and a factor of 15/26. The standard accounting practice involves making a year-end provision for gratuity, debiting the Gratuity account and crediting a provision account (short-term and long-term). Upon an employee's departure, this provision account is debited, and the bank account is credited.