Prepaid expenses are payments made in advance resulting into a right to receive compensation or a claim to use assets of another entity like prepaid insurance and prepaid rent.
These are expenses but taken as an asset because the benefit from them is still due.
Advance or Prepaid Expenses
Advance salary account To Cash account To Bank account (Being- advance salary paid) |
Dr
|
|
Advance expenses given to person Advance given in cash Advance given by cheque
|
Increase in assets Decrease in assets Decrease in assets
|
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Advance salary# account To Salary account To Cash account To Bank account (Being- advance salary paid) . |
Dr
|
|
xxxxx
|
xxxxx xxxxx xxxxx |
Keep in Mind (KIM)
Advances mean expenses have paid before work complete. Advance# = prepaid = pain in advance Salary# is nominal account, but advance salary is real account; it is supposed transaction. |
PROBLEM: 11
The following transaction is given to you by BL Shoes House:
2 Jan: Salary paid in advance $6,500.
10 Jan: Printing expenses paid in advance $7,350 by cheque.
15 Jan: Prepaid wages paid to carpenter $6,430.
18 Jan: Rent paid $25,000; out of rent paid $5,000 was as advance.
20 Jan: Insurance paid $12,000 by cheque which include $2,000 as advance.
Required: Journal entries
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
Jan, 2 |
Advance salary account Cash account To record advance salary paid to staffs |
|
6,500
|
6,500
|
Journal Entry for European Style
Date |
|
|
€ |
€ |
Jan, 2 |
Advance salary account Cash account To record advance salary paid to staffs |
Dr |
6,500
|
6,500
|
Journal Entries
In the book of BL Kirana Pasal
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
2 Jan |
Advance salary account To Cash account (Being- salary paid in advance) |
Dr
|
|
6,500
|
6,500
|
10 Jan |
Advance printing expenses account To Bank account (Being- printing expenses paid in advance by cheque) . |
Dr |
|
7,350 |
7,350 |
15 Jan |
Prepaid wage account To Cash account (Being- wage paid in prepaid) |
Dr
|
|
6,430 |
6,430 |
18 Jan |
Rent account Prepaid rent account To Cash account (Being- rent paid and paid in prepaid) |
Dr Dr
|
|
20,000 5,000 |
25,000 |
20 Jan |
Insurance expenses account Prepaid insurance account To Bank account (Being- insurance paid and paid in prepaid) |
Dr Dr
|
|
10,000 2,000 |
12,000 |
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 11 PREPAID EXPENSES
The following transaction is given you by BC Furniture House:
1 March: Rent paid in advance $15,000.
10 March: Advertisement paid in advance $8,500 by cheque.
22 March: Prepaid wages $10,600.
28 March: Salary paid $45,000; out of salary paid $5,000 was as advance.
31 March: Insurance paid $7,480 by cheque, in which $2,370 was advance.
Required: Journal entries
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