Net Recovery Accounting
We had to revise a bonus payment due to an error in the calculation. By the time the error was discovered it was a number of pay periods later. Most of the individuals affected are high earners so most were maxed out due to the first bonus . When we did the recalculation using the revised bonus amount CPP and EI did not calculate . The net recovery is the difference between the payment that they received and the revised payment . However, because CPP and EI were not calculated on the second payment when we create the journal we are out by the CPP and EI. For example, see below hypothetical
Bonus Paid
$2000. less CPP 98.19 less EI 31.60 less tax 900. Net =970.21
Revised Bonus
1000 no CPP no EI less tax 450.00. Net = 550
Net Recovery = 420.21
Once I receive the net recovery I need to reduce the bonus year to date by -$1000. . The tax is reduced by $450.00 . The result then equals $550.00 not the net recovery of $420.21 , the difference being the prepaid CPP and EI that has already been collected, $98.19 and $31.60. How do we account for the prepaid CPP and EI.
Thank you
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