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.

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When people go on a vacation, they depending on local regulation may have to be paid up front before leaving or the payment shall continue as regular monthly salary, however the rule is that people do have to get paid when they are on vacation. Fact of the matter is that they can go on a holiday even with short notice and you have to be prepared to make the upfront payment to them if so required by local law.

In fact, as a general rule, your balance sheet should always reflect the liability you owe to your employees when it comes to vacations. For an example, when an employee decides to leave the post for good, he or she is entitled to all those vacation days and also respective payment.

So what some companies do is simply accruing a certain percentage of monthly salaries to vacation pay reserve account every month. If let’s say the employees are allowed to take 28 days off with full pay, the reserve should essentially be in the amount of one month’s payroll expense more or less depending of course on the days people have to receive. As an example, when accruing for the reserve in December, if you have all the employees having their vacation in summer and all of them have give or take 14 days on their reserve in mentioned December, the reserve amount on the balance sheet should be in the amount of roughly half of the monthly salary expense.

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