Full and Final Settlement
Full and Final Settlement
When a worker is officially dismissed from a business, all of their debts and obligations to the business need to be paid. These include unpaid accounts (such as wages, bonuses, or refunds), funds owed to the worker (such as loans or advances), and items provided to the worker (such as computers or corporate phones). Full and Final Statement (FnF Settlement) in ERPNext ensures that the entire exit process is executed in a transparent, well-organized, and responsible manner, with no strings left unattended in the books of accounts. This statement is both a financial settlement record and an itinerary of what to do while exiting. It ensures that the exit proceeds smoothly and that proper accounting entries are recorded in the general ledger for reporting and compliance.
1. Requirements
Ensure the following are correct before you draft a Full and Final Statement: * The Employee record should already be in the system.
The Employee master should have the Relieving Date filled up because the FnF statement can only be issued for employees who are resigning, retiring, or are being dismissed.
Ensure the records of Payroll, Expenses, Loans, and Advances are current so settlement can use the latest financial information.
With these requisites in hand, the system can properly draw in all the relevant information regarding payables, receivables, and assets to the settlement process.
2. How to create a Full and Final Statement
Select the Employee. Once you select an employee, the system will automatically retrieve their vital information as well as any pending documentation.
Under Payables and Receivables, the system automatically includes some default components:
Payables: Salary Slip, Gratuity, Expense Claim, Bonus, and Leave Encashment
Loans and employee advances are some instances of receivables.
By default, each component will appear as "Unsettled."
Then, either HR or the Payroll team can: Select the proper document, such as an Expense Claim that is still to be paid or an Additional Salary one for a bonus.
Remove the irrelevant parts.
If there are specific settlement requirements in the company, you can insert additional components or even relate new doctypes.
The amount and the account which is due or owing will be automatically picked up whenever possible. If not, you must manually enter these facts.
When you select "Employee Advance," the system makes the payment account the account of the advance and calculates the balance as: Paid Amount - (Claimed Amount + Returned Amount).
When you submit an expense claim, the system retrieves the payable account from the claim and calculates the amount to pay by deducting the total amount reimbursed and the total advance amount from the grand total.
For Gratuity, the settling amount and account to settle are both sourced directly from the record of gratuity.
The Payroll Payable Account is set up as the salary slip account, and the settlement amount is sourced from the Net Pay on the salary slip.
The system will also automatically retrieve all the employee's assets that have been allocated to them through existing Asset Movement records.
HR can decide if the employee can return the item (such as a laptop, phone, or uniform) or reimburse them for it again for every asset.
By default, the settlement documents will be Pending status. HR can mark all the items under Payables, Receivables, and Assets as Settled after the correct steps have been followed.
3. Characteristics
3.1 Recovering the cost of an asset
In certain instances, the worker can retain an asset that has been provided to them rather than returning it to the company. A long-term employee can retain their laptop or cell phone, for instan
The HR personnel can select "Recover Cost" as the Action for that asset.
Then the system will increase the Total Asset Cost for that asset by the Total Receivable Amount.
This allows the employee to retain the item while ensuring the corporation receives back its cash.
3.2 Pay using a journal entry
You can submit the FnF Statement after all the payables, receivables, and assets entries are completed.
When you finish submitting, the system presents a button that reads "Create Journal Entry."
If you click on this, a Journal Entry is created that presents all the accounts and totals related to the settlement.
The entry presents both Payment that the employee is entitled to, including unpaid wages, cash advances, and reimbursements.
Fees that can be recovered from the employee, like loan proceeds, advances which are not reimbursed, or property expenses.
Next, HR or Accounts can select the final account where the payment will be done. For instance, if they are paying the employee, they can select the Cash/Bank Account.
The FnF Statement automatically changes status to Paid once the Journal Entry has been saved and posted.
This ensures that the process of leaving covers all the accounting, resulting in a record that can be verified for compliance, financial control, and reporting.