Prepaid Expense Revenue Journal Entry

The benefits of such expenses are to be utilized by the person on the future date.

Prepaid expense revenue journal entry. Rent expense journal entry at the end of the month the company usually make journal entry by debiting rent expense account and crediting prepaid rent account to recognize the expense for the rental facility that the company has used for the period. In small business there are a number of purchases you may make that are considered prepaid expenses. Prepaid expenses are the amount of the expenses of which has been paid in advance by one person to another but the benefit of the same is not yet received. Equipment account which requires changes due to usage.

Prepaid expenses also arise when a business buys items such as stationery for use within the business. The adjusting entry on january 31 would result in an expense of 10 000 rent expense and a decrease in assets of 10 000 prepaid rent. The double entry accounting journals used above are more fully explained in our prepaid expense journal entry example. Likewise the company needs to account for any prepaid expense with the proper journal entry to avoid misstatement that could occur on financial statements due to inappropriate recognition.

These prepaid expenses may include prepaid rent prepaid insurance and supplies etc. Before diving into the wonderful world of journal entries you need to understand how each main account is affected by debits and credits. At the end of january one third of the prepaid rent expense will have been used up as the business has used the premises. This must now be charged to the profit and loss for january the prepaid expense accounting is as follows.

Debits increase an asset or expense account or decrease equity liability or revenue accounts. Look at prepaid expense journal entry website for more information about prepaid expense journal entry. According to generally accepted accounting principles expenses should be recorded in the same accounting period as the benefit generated from the related asset. Expense accounts are prepaid which requires an adjustment because time has passed is due.

Refer to the first example of prepaid rent. At the end of the accounting period any stationery not used up is held as inventory and a prepaid. 60 000 to rent a c. Using the concept of the journal entry for prepaid expenses below is the journal entry for this transaction in the books of company b at the end of december.

Prepaid expense journal entry. Prepaid expenses journal entry create a prepaid expenses journal entry in your books at the time of purchase before using the good or service. Hence the journal entry above is simply increasing one asset prepaid rent together with the decreasing of another asset cash. The adjusting journal entry for a prepaid expense however does affect both a company s income statement and balance sheet.