Prepaid expenses are payments made in advance to get work done within time. Prepaid is debited in journal entry and is shown in assets side of balance sheet.
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 salary account |
Dr |
Advance expenses given to person |
Increase in assets |
To Cash account |
|
Advance given in cash |
Decrease in assets |
To Bank account |
|
Advance given by cheque |
Decrease in assets |
(Being- advance salary paid) |
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Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Advance salary# account |
Dr |
|
xxxxx |
|
|
To Salary account |
|
|
|
xxxxx |
|
To Cash account |
|
|
|
xxxxx |
|
To Bank account |
|
|
|
xxxxx |
|
(Being- advance salary paid) |
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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. |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 11
The following transaction is given to you by BL Kirana Pasal:
2 Jan: Salary paid in advance Rs 6,000.
10 Jan: Printing expenses paid in advance Rs 12,000 by cheque.
15 Jan: Prepaid wages Rs 17,000.
18 Jan: Rent paid Rs 25,000; out of rent paid Rs 5,000 is in advance.
20 Jan: Insurance paid Rs 12,000 by cheque in which Rs 2,000 is advance.
Required: Journal entries
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
Jan, 2 |
Advance salary account |
|
6,000 |
|
|
Cash account |
|
|
6,000 |
|
To record advance salary paid to staffs |
|
|
|
Journal Entry for European Style
Date |
|
|
€ |
€ |
Jan, 2 |
Advance salary account |
Dr |
6,000 |
|
|
Cash account |
|
|
6,000 |
|
To record advance salary paid to staffs |
|
|
|
Journal Entries
In the book of BL Kirana Pasal
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
2 Jan |
Advance salary account |
Dr |
|
6,000 |
|
|
To Cash account |
|
|
|
6,000 |
|
(Being- salary paid in advance) |
|
|
|
|
10 Jan |
Advance printing expenses account |
Dr |
|
12,000 |
|
|
To Bank account |
|
|
|
12,000 |
|
(Being- printing expenses paid in advance by cheque) |
|
|
|
|
15 Jan |
Prepaid wage account |
Dr |
|
17,000 |
|
|
To Cash account |
|
|
|
17,000 |
|
(Being- wage paid in prepaid) |
|
|
|
|
18 Jan |
Rent account |
Dr |
|
20,000 |
|
|
Prepaid rent account |
Dr |
|
5,000 |
|
|
To Cash account |
|
|
|
25,000 |
|
(Being- rent paid and paid in prepaid) |
|
|
|
|
20 Jan |
Insurance expenses account |
Dr |
|
10,000 |
|
|
Prepaid insurance account |
Dr |
|
2,000 |
|
|
To Bank account |
|
|
|
12,000 |
|
(Being- insurance paid and paid in prepaid) |
|
|
|
|
|
|
|
|
|
|
###########
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 Rs 15,000.
10 March: Advertisement paid in advance Rs 8,000 by cheque.
22 March: Prepaid wages Rs 10,000.
28 March: Salary paid Rs 45,000; out of salary paid Rs 5,000 is in advance.
31 March: Insurance paid Rs 7,000 by cheque in which Rs 2,000 is advance.
Required: Journal entries
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