Prepaid expenses are those expenses which are paid in advance by the company. The benefits of such expenses are not received by the company and therefore they are recorded as asset in the balance sheet. Examples of prepaid expense are prepaid rent, prepaid insurance etc… Given below is the journal entry which is passed for recording prepaid expense into the books of accounts of a company -
Prepaid expense account Dr
To cash account
(When the company pays prepaid expense this journal entry will be passed)
After making the above journal entry another journal entry will be made at the end of period for adjustment of prepaid expense -
Expense account Dr
To Prepaid expense account
(This entry is passed for adjustment purpose, by debiting the relevant expense when it become due account and transferring balance to the prepaid expense account under asset side of balance sheet.)
helpfulll to a large extent
very nice
Thanks Boss. You just made my day better.
My Question is how i’ll make the journal entry for below information.
Year end is 31st,Dec,2012. and we paid rent on 1st Sep,2012 for the period from Sep,2012 to Aug,2013 are as follow.
on 1st Sep,2012 we paid rent from petty cash for 6 Months.
and issued the PDC(1st March,2013) for remaining 6 Months.
what’ll be Journal entry for all since the Year end is 31st dec,2012.
Please let me know ASAP it’ll be Highly Appreciable.
Since you have to make journal entry up to 31st DEC 2012, prepaid rent will be of 8 months, then only 4 months rent will be adjusted in the current year (assuming you have paid rent at the beginning of September 2012), and as far as PDC is concerned 2 entries will be passed
1. Prepaid rent account Dr to PDC Payable
2. PDC payable Debit to Bank account(When PDC is encashed)
but i am more concern abut first 6 months.
what entries i have to pass for first 6 months since i already paid by petty cash.
the Transaction which i pass on 31st sep,2012
Rent A/c Dr(4 months)
To petty cash a/c
than on 31 sep,2012
prepaid rent a/c dr
To petty cash a/c
To PDC a/c
and when PDC will hit the bank..
PDC a/c Dr
To bank A/c
please check and let me know whether its correct or not.
Ya, it is correct and at the end of period adjusting entry as i mentioned in my post will be passed
which mean on the end of Aug,2013 below enry need to pass
Expense account Dr
To Prepaid expense account