097 Bonuses-Employees

Adjustments

Synopsis

Account 097, Bonuses-Employees, is established to record the bonuses paid to employees over the normal salary, wage or pay plan arrangements. The purpose of the bonus is to reward exceptional performance or productivity and to share in the success of the dealership. Bonuses should be used to provide incentives for doing a job well and remaining loyal to the dealership.

Debits

Credits

The amount of Bonuses paid to employees
The amount of the monthly provision for Bonuses to be paid to employees at a later date

The amount of the monthly provision for Bonuses to be paid to employees at a later date

Example 1

Record the monthly accrual of $2,500 for employee bonuses.

Journal: Payroll

Entry:		Debit	Credit
Account 097	Bonuses – Employees	$2,500
Account 328	Employee’s Incentives/Bonuses Payable		$2,500

Comments

Employees who are eligible to receive a bonus should be given the terms of the bonus plan in writing. The criteria for earning the bonus should also be discussed with each employee to make sure that there are no misunderstandings about the requirements for earning the bonus.

Bonus payments are subject withholding taxes and must be processed through the payroll system. When bonuses are paid each month, the amount of the bonus payment is debited to this account.

If the bonus is to be paid at a later date, such as the end of the year, the monthly portion of the earned bonus should be accrued by crediting Account 328, Employees Incentives / Bonuses Payable and debiting Account 097, Bonuses - Employees.

Note:

Since the prospect of earning a Bonus serves as an incentive for good work performance and receiving a Bonus is a reward for a job well done, the motivational benefits of paying bonuses is an important part of successful personnel management. It goes without saying that Bonuses should be paid promptly along with a word of recognition. When employees fail to earn available bonuses, a review of the employee’s performance is warranted.