DATA:
The 2011 employee performance bonus will be $10 mil.
The bonus is paid in March of 2012 is $9 mil
The 2012 employee performance bonus will be $12 mil.
The bonus is paid in March of 2013
Exercise:
What is the monthly accrual amount?
What account is debited?
What account is credited?
Create and account reconciliation for 2012 with the data provided above
What recommendations do you have for this account to ensure it is proper?
To find the monthly accrual amount, we need to calculate the portion of the annual bonus that is accrued each month. We can do this by dividing the total bonus amount by the number of months in the period.
For the 2011 employee performance bonus:
Total bonus amount = $10 million
Payment is made in March 2012, so the period is 12 months (from April 2011 to March 2012).
Monthly accrual amount = Total bonus amount / Period
Monthly accrual amount = $10 million / 12 months
Monthly accrual amount = $0.833 million or $833,333.33
Therefore, the monthly accrual amount for the 2011 employee performance bonus is $833,333.33.
The account that is debited for the monthly accrual amount is typically an expense account called "Employee Bonus Expense" or something similar.
The account that is credited is usually a liability account called "Accrued Employee Bonus" or "Bonus Payable." This liability account represents the amount owed to the employees for the bonus.
To create an account reconciliation for 2012, you need to compare the beginning balance, additions, and subtractions to the ending balance.
Account reconciliation for 2012:
Beginning balance: $0
Additions:
- Monthly accrual amount for 2011 performance bonus: $833,333.33
- Monthly accrual amount for 2012 performance bonus: $1 million ($12 million / 12 months = $1 million)
Subtractions:
- Bonus payment made in March 2012: $9 million
Ending balance = Beginning balance + Additions - Subtractions
Ending balance = $0 + $833,333.33 + $1 million - $9 million
Ending balance = -$7,166,666.67
Based on the provided data, it seems that there is a negative balance for the accrued employee bonus in 2012. This implies that there may have been more bonus payments made than accrued. It is recommended to review and investigate this discrepancy in order to ensure the accuracy of the account and make any necessary adjustments to correct the balance.