Journal Entry for Signing Bonus
A signing bonus is a bonus that an employer offers to a new employee as an incentive to get them to accept the job. Signing bonuses are most commonly offered to candidates who have multiple offers on the table, but they can also be used to attract talent from out of state or encourage employees to stay with a company for a certain period of time. In some cases, signing bonuses are offered as part of a relocation package.
The amount of the bonus varies depending on the company and the position, but it typically equals one or two months’ salary. Some employers require that the employee repay the bonus if they leave the company within a certain amount of time, while others make it part of the employee’s overall compensation package.
In this competitive market, employers are finding it increasingly difficult to attract talented employees. In order to lure top talent, employers are offering a variety of incentives, such as competitive salaries, flexible work schedules, and generous benefits packages. However, these incentive programs come at a high cost, and many employers are struggling to keep up with the competition.
As a result, employers are seeking new and innovative ways to identify and attract talented employees. One such method is using social media platforms to reach out to potential candidates. Another approach is partnering with local colleges and universities to identify talent early on. By taking proactive steps, employers can ensure that they are able to find and retain the best employees for their organization.
Signing bonus is one the most attractive way to persuade the employee to join the company. The company immediately provides a bonus when the employee joins the company. It is not related to uncertainty such as company profit, market condition, or even individual performance.
In accounting, the signing bonus is the expense that needs to record on the income statement. It has to be recorded immediately after the candidate accepts the offer and starts working for the company. It is also the time when employees are entitled to receive a bonus. There is no liability record prior to this transaction.
Journal Entry for signing bonus
The signing bonus that provides to employees needs to record as an expense on the entitlement date if it has not been attached with other conditions. It is recorded as an expense immediately with the full amount.
It is not required to record liability if the company does not require the new staff to work for more than a year in order to receive the bonus.
The journal entry is debiting signing bonus and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Signing Bonus | XXX | |
| Cash | XXX |
The signing bonus is the expense on the income statement. It is recorded in the same accounting period that the employee received the payment.
Note: If the company requires the employee to work for more than one accounting period, the signing bonus needs to allocate over the period using the straight-line method.
Example
Company ABC is recruiting a new software developer to design a new web application for the new business project. Due to the competitive market, it is very hard to find such a suitable candidate under a normal recruitment process. So the company decided to provide $ 20,000 signing bonus for this new position. The candidate will receive the payment after one week of signing the employment contract. There are no other attachments. Please prepare the journal entry for the signing bonus.
The company will provide the signing bonus to employees within the same month which they start the first month. It is not related to other uncertain factors such as profit or performance. So the company will require to record the expense in the same period in which payment is made.
The journal entry is debiting signing bonus expense $ 20,000 and credit cash $ 20,000.
| Account | Debit | Credit |
|---|---|---|
| Signing Bonus | 20,000 | |
| Cash | 20,000 |