Research project Essay Example | Topics and Well Written Essays - 750 words - 1

Research project - essay ExampleThe intercommunicate net income before inducementes for the year is $17.2 million. The preliminary net income before bonuses for the first accommodate is $3.7 million. According to (FASB 11) inaccurate recognition of bonuses result into inaccuracies within financial statements and hence it is important to make withdraw recording of bonuses as well as well as taxes associated with the same. Treatment of accounting transactions a good deal requires careful consideration of the implications of the same both technically and at ethical levels. Reliable sources often accentuate the importance of accruing bonuses whenever it is expected that the companys financial/operational performance will at least(prenominal) be equivalent to the set performance levels to warrant issuance of bonuses (Kimball 12). The accrual decision requires considerable ruling of the performance of the entire period which encompasses many future months during which one thing or another may impede achievement of the bonus plan objectives. A number of alternatives have been proposed for accrual of bonuses. These include Non-accrual of write off until a reasonable probability of achieving the bonus is present Accrual of a smaller expense beforehand(predicate) in a given performance period to reflect senior high school performance failure assay and accrue a larger expense in future when success probability is extremely high It is not advisable that one accrues significant bonus expense in an instance where probability of apportion the bonus is extremely low (Stickney 80). Such accruals provide a false expense which might be reversed later when the performance period comes to an polish off. A sample bonus accrual expense for the geek presented could be as follows, Debit Credit Bonus expense 185,000 accumulated bonus liability 185,000 Where salary for the accrued bonus is made later, the journal entry eliminates accrued bonus liability whilst recog nizing any arising payroll tax liabilities which are associated with the accrued bonus. A entry for this could be as follows, Debit Credit Accrued bonus liability 185,000 Cash xxx Taxes xxx As a matter of fact, when a circumstances bonus is issued at the end of every quarter, it is important to recognize a portion of the bonus at the end of to each one months closing financial statements. For instance, the 5% bonus at each quarters end, an accrual of 5% of extreme salary expense is recorded at the end of every months cycle closure (FASB 54). A debit is posted to employee bonuses account for total accrual amount and credit is made to bonus accrual account. In the case discussed in the report, the bonus payment is pegged to the projected net income before bonuses of $17.2 million. However, going by the earnings for the current quarter, there is no high likelihood of attaining the projected income before payment of bonuses and hence its non-accrual is recommended until such tim e that the probability of attaining the projected income before bonus is achieved. In general, the best way to treat the bonus expense is to handle it as an accrued expense or rather an expense incurred but not yet paid. This is consideration of the fact that whilst the bonus is anticipated, changes in the financial results of the company can prevent the company from incurring this expense at the end of the financial period. Incurrence of this expense is pegged on a condition which must be achieved for it to be affected.