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Journal Entry for Prepaid Expenses | Advance Expense | Prepaid Expense

Arjun EP

Published on: June 20, 2020

Journal Entry for Prepaid Expenses | Journal Entry for Advance Expenses

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)

Advance expenses given to person

Advance given in cash

Advance given by cheque

Increase in assets

Decrease in assets

Journal Entry

In the book of …………

Date

Particulars

Amount Dr

Amount Cr

Advance salary^# account

To Salary account

To Cash account

To Bank account

(Being- advance salary paid) .

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

Journal Entry for European Style

Date

€

Jan, 2

Advance salary account

Cash account

To record advance salary paid to staffs

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