## Leave Compensation – Accumulating vs Non-accumulating
### Classification Tree
```
Paid Leaves
├── Accumulating (can be carried forward / clf)
│ ├── Vesting → employee CAN encash unused leaves
│ └── Non-vesting → employee CANNOT encash; leaves clf to next year
└── Non-accumulating → unused leaves lapse; NO accounting entry required
```
### Accounting Rule for Accumulating Leaves
Recognize expense when the employee renders service and earns the leave – not when it is availed or encashed.
```
Dr Leave Compensation Expense ×××
Cr Provision for Leave Comp ×××
```
When leave is availed or encashed:
```
Dr Provision for Leave Comp ×××
Cr Cash / Bank (or Salary) ×××
```
### Key Estimation Requirement
When computing the provision, factor in how many leaves the employee is actually expected to utilize in the future. Do not mechanically provide for the full balance.
> If 30 days are earned but only 20 days are expected to be used → provide for 20 days only.
### Non-vesting vs Vesting – Economic Difference
| Event | Non-vesting | Vesting |
|---|---|---|
| Employee avails all accumulated leaves | Gets salary for those days (normal) | Gets salary for those days (normal) |
| Employee does NOT avail and carries forward | Provision clf; cannot encash | Provision clf; CAN encash later |
| Total cost to employer (leaves not availed) | Only regular salary | Salary + encashment payment |
> Under non-vesting: if the employee avails all leaves, the leave compensation provision is absorbed into salary cost. Under vesting: if the employee encashes, both salary and the encashment liability are paid.