Question

River Company actually made a profit in the first year of operations. The owner decided in November that if the company makes a profit that bonuses totaling $12,000 would be paid in January of 2019. As of 12/31/18 the owner was not sure that River Company would be profitable. Therefore no accounting was done for the potential bonus. How to write adjusting entry ???

Answer 1

The adjusting entry is for this is make by doing the provision of this Bonus expenses. It means River company will do the provision for the bonus payable and in january if in the actual there is profit than this payment will be made and if there is no profit than this provision will be reverse immediate in next month.

Provision entry will be made as below,

Journal Entries
Date	Account Title and explanation	Debit	Credit
Dec - 31, 2018	Bonus Expenses	$                  12,000
	To Bonus Liability		$                     12,000
	(To Record the bonus liability for the year)