How to calculate and record the annual bonus?
Most companies have an annual bonus that is paid out after year-end. Under U.S. GAAP, the company should accrue for the annual bonus expense throughout the year. The first step is to calculate what the annual bonus payment is expected to be.
For example, if the management team receives 10% of EBITDA achieved, then you would estimate annual EBITDA and multiply by 10%.
From there, you would just divide the expected annual bonus of $12,000 by 12 months to determine how much bonus expense to record each month. After recording the entry below each month for 12 months, you would have total bonus expense of $12,000 and a bonus accrual of $12,000.
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What is the journal entry to record a bonus accrual?
When a bonus is grated to the CEO or any other employee at a company, the company must record an accrued bonus liability. The company would debit bonus expense and credit accrued bonus (liability). When it comes time for the company to pay the cash bonus to the employee, the company would debit accrued bonus […]