diff --git a/erpnext/hr/doctype/leave_encashment/test_leave_encashment.py b/erpnext/hr/doctype/leave_encashment/test_leave_encashment.py
index ef5c2aa..cfed780 100644
--- a/erpnext/hr/doctype/leave_encashment/test_leave_encashment.py
+++ b/erpnext/hr/doctype/leave_encashment/test_leave_encashment.py
@@ -9,41 +9,39 @@
 from erpnext.hr.doctype.employee.test_employee import make_employee
 from erpnext.hr.doctype.salary_structure.test_salary_structure import make_salary_structure
 from erpnext.hr.doctype.leave_period.test_leave_period import create_leave_period
+from erpnext.hr.doctype.leave_policy.test_leave_policy import create_leave_policy\
 
 test_dependencies = ["Leave Type"]
 
 class TestLeaveEncashment(unittest.TestCase):
 	def setUp(self):
 		frappe.db.sql('''delete from `tabLeave Period`''')
-	def test_leave_balance_value_and_amount(self):
-		employee = "test_employee_encashment@salary.com"
-		leave_type = "_Test Leave Type Encashment"
+		frappe.db.sql('''delete from `tabLeave Allocation`''')
 
 		# create the leave policy
-		leave_policy = frappe.get_doc({
-			"doctype": "Leave Policy",
-			"leave_policy_details": [{
-				"leave_type": leave_type,
-				"annual_allocation": 10
-			}]
-		}).insert()
+		leave_policy = create_leave_policy(
+			leave_type="_Test Leave Type Encashment",
+			annual_allocation=10)
 		leave_policy.submit()
 
 		# create employee, salary structure and assignment
-		employee = make_employee(employee)
-		frappe.db.set_value("Employee", employee, "leave_policy", leave_policy.name) 
-		salary_structure = make_salary_structure("Salary Structure for Encashment", "Monthly", employee,
+		self.employee = make_employee("test_employee_encashment@example.com")
+		frappe.db.set_value("Employee", "test_employee_encashment@example.com", "leave_policy", leave_policy.name)
+		salary_structure = make_salary_structure("Salary Structure for Encashment", "Monthly", self.employee,
 			other_details={"leave_encashment_amount_per_day": 50})
 
 		# create the leave period and assign the leaves
-		leave_period = create_leave_period(add_months(today(), -3), add_months(today(), 3))
-		leave_period.grant_leave_allocation(employee=employee)
+		self.leave_period = create_leave_period(add_months(today(), -3), add_months(today(), 3))
+		self.leave_period.grant_leave_allocation(employee=self.employee)
 
+
+	def test_leave_balance_value_and_amount(self):
+		frappe.db.sql('''delete from `tabLeave Encashment`''')
 		leave_encashment = frappe.get_doc(dict(
 			doctype = 'Leave Encashment',
-			employee = employee,
-			leave_type = leave_type,
-			leave_period = leave_period.name,
+			employee = self.employee,
+			leave_type = "_Test Leave Type Encashment",
+			leave_period = self.leave_period.name,
 			payroll_date = today()
 		)).insert()
 
@@ -53,3 +51,26 @@
 
 		leave_encashment.submit()
 		self.assertTrue(frappe.db.get_value("Leave Encashment", leave_encashment.name, "additional_salary"))
+
+	def test_creation_of_leave_ledger_entry_on_submit(self):
+		frappe.db.sql('''delete from `tabLeave Encashment`''')
+		leave_encashment = frappe.get_doc(dict(
+			doctype = 'Leave Encashment',
+			employee = self.employee,
+			leave_type = "_Test Leave Type Encashment",
+			leave_period = self.leave_period.name,
+			payroll_date = today()
+		)).insert()
+
+		leave_encashment.submit()
+
+		leave_ledger_entry = frappe.get_all('Leave Ledger Entry', fields='*', filters=dict(transaction_name=leave_encashment.name))
+
+		self.assertEquals(len(leave_ledger_entry), 1)
+		self.assertEquals(leave_ledger_entry[0].employee, leave_encashment.employee)
+		self.assertEquals(leave_ledger_entry[0].leave_type, leave_encashment.leave_type)
+		self.assertEquals(leave_ledger_entry[0].leaves, leave_encashment.encashable_days *  -1)
+
+		# check if leave ledger entry is deleted on cancellation
+		leave_encashment.cancel()
+		self.assertFalse(frappe.db.exists("Leave Ledger Entry", {'transaction_name':leave_encashment.name}))