How to Book Journal Entry for Bonus Accrual

Bonuses are accrued as earned. Generally bonuses should be expenses over time as employees perform work over the service period, even when the final bonus amount is conditional on performance. When conditions like performance or other uncertainties exist, a probability weight should be applied.

As an example, a company offers an executive a $400,000 annual bonus for the year 20x3 payable on March 15, 20x4. A partial bonus can be paid, and the expectation therefore is 75% of the bonus will be paid out. The monthly journal entry for this bonus accrual would look like this:

Debit: Bonus Expense $25,000
Credit: Accrued Bonus $25,000

Don't forget that you may need to include an accrual for payroll taxes and other related payroll items if you anticipate them to be material!

When the bonus is paid out, the journal entry would look like this:
Debit: Accrued Bonus $X (The total amount accrued in 20x3)
Credit: Payroll Liabilities and Cash $Y (The total amount paid in 20x4)
Debit/Credit: Bonus Expense (Any difference between X and Y)