There are essentially two types of bonuses – those that are given from year to year and those which are decided ad hoc and given only on certain exceptional occasions. Whilst there are a few differences when it comes to accounting for them, in essence they are fairly the same. Both need to be recognized on the balance sheet and income statement just when it has become apparent that they will be paid and people have reason to be expecting them.

As for the year to year bonuses (whether paid on monthly, quarterly or annual basis), the expense should be spread out over the period the bonus relates to. When it is not so much of an issue when it comes to monthly bonuses obviously (though keep in mind posting them into the month the bonus is for), it is highly recommended to spread the expense more or less evenly over the months when it comes to annual bonuses. The reason behind this is simple fact that your monthly expenses stay on stabile levels instead fluctuating significantly at year end or at the end of each quarter.

Provided that the calculation methods are simple and the amounts in related to annual or monthly salaries, it is fairly easy to estimate the rough amount needed for bonuses. Since adjustments at year end are perfectly okay, don’t be afraid to charge partially every month.

Now, as for the ad hoc bonuses though, generally speaking there is no knowing when or in which amount and even if they will be paid, hence it isn’t possible to spread their expense usually. The rule is that when it has been decided the bonus shall be paid, the expense is accounted on the income statement and liability on the balance sheet. When usually the expense needs to be charged into the period it relates to, it may not always be possible though. For an example, if you prepare the annual report and sign it off in March and in June the owners decide to give bonus to management, this expense cannot be recognized in prior period obviously. However, if this sort of practice is reoccurring over the years, it may be wise to accrue for it on the financial statements nevertheless.

In short, spread your expenses whenever possible as it gives you more stabile levels of expenses and hopefully depending on your turnover fluctuation also profit. If it is more probable that ad hoc bonuses are not so much ad hoc anymore, it may be also advisable to accrue them as well.