How do you account for a cash bonus?

Accruing Bonuses in the Financial Records Post a debit to your employee bonuses account for the total amount of the accrual, followed by a credit to the bonus accrual account. If you are accruing $6,000 at the end of a month, debit $6,000 to the bonus expense account and credit $6,000 to the accrued bonuses account.

smallbusiness.chron.com - How to Record Employee Bonuses - Small Business - Chron.com

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Performance or annual bonuses reward your employees and help encourage them to give their best at work. If you issue bonuses to your employees, one of the most important things is to record it properly in your ledger. Inaccurate bonus recognition can result in inaccuracies in your financial statements. Book the bonus payments properly and recognize accruals and taxes accordingly to ensure accurate reporting and federal filings.

Accruing Bonuses in the Financial Records

If you issue a percentage bonus at the end of each quarter or the end of each year, you must recognize a portion of the bonus during each month's closing process. For example, if you plan to issue a 5 percent bonus at the end of the quarter, accrue 5 percent of your total salary expense during each month's closing cycle. Post a debit to your employee bonuses account for the total amount of the accrual, followed by a credit to the bonus accrual account. If you are accruing $6,000 at the end of a month, debit $6,000 to the bonus expense account and credit $6,000 to the accrued bonuses account.

Recording Bonus Payments

When you issue a bonus payment, it's important to recognize the expense if you have not posted an accrual, or relieve the accrual and reduce the cash account. If you issue $4,500 in bonus payments without a prior accrual, debit the bonus expense account for $4,500 and credit the cash account for $4,500 to account for the payment. If you accrued the expense, debit the accrual account for the amount of the payment, then credit the cash account to balance the ledger.

Process the Tax Withholding

Bonus payments are subject to federal income taxes, Medicare and Social Security. You have the option to choose how you wish to process the tax withholding. If you issue the bonus as part of the standard paycheck, you can withhold taxes at the same rate as the standard pay. If you issue the bonus as a separate payment, you can withhold the taxes at the standard rate or select a flat 25 percent withholding.

Expense Recognition Throughout the Year

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What is the rule for bonus?

The Payment of Bonus Act, 1965 provides for a minimum bonus of 8.33 percent of wages. The salary limited fixed for eligibility purposes is Rs. 3,500 per month and the payment is subject to the stipulation that the bonus payable to employees drawing wages or salary not exceeded to Rs.

clc.gov.in - Payment of Bonus Act - Chief Labour Commissioner (Central)

The Act Applies to all Factories and every other establishments, which employs twenty or more workmen. The Payment of Bonus Act, 1965 provides for a minimum bonus of 8.33 percent of wages. The salary limited fixed for eligibility purposes is Rs. 3,500 per month and the payment is subject to the stipulation that the bonus payable to employees drawing wages or salary not exceeded to Rs.10000 per month would be calculated as if their salary or wages is Rs. 3,500 per month. The Central Government is the appropriate authority in respect of the industries /establishments for which it is appropriate Government under the industrial Disputes Act, 1947.