Journal entry of prepaid expenses

Answer 1

these are those expenses which have been paid in advance.

it means that these expenses,though not related to the current year,have been included in the expenses of current year.

so in order to show a true and fair view,we have to deduct such prepaid expenses from the original expenditure as they are belonging to the next year.

the entry is (for example)

prepaid insurance dr

to insurance a/c cr

Answer 2

A journal entry for prepaid expenses involves debiting the prepaid expense account to recognize the asset acquired, and crediting the cash or bank account to show the payment made. Over time, the prepaid expense is gradually recognized as an expense through adjusting entries by debiting the relevant expense account and crediting the prepaid expense account. This process ensures that expenses are matched with the revenues they help generate.

Answer 3

When prepaying for an expense the journal entry is pretty much straight forward. For example your company pays for their insurance 6 months in advance. To plug in some numbers, we'll go with the total is $600, the journal entry would be.

Prepaid Insurance (debit) $600

Cash (credit) $600

The adjusting entries each month after that month's payment is "used up" is pretty simple as well. Since your company has "prepaid" the cash account will no longer need to be adjusted. So after the first month the adjusting entries will be:

Insurance Expense (debit) $100

Prepaid Insurance (credit) $100

Because we have used up one months insurance payment it now becomes an expense. Expense accounts carry a debit balance, also because we used up a months worth we have to reduce the prepaid account to reflect this, since prepaid accounts are assets, we must credit the account to reduce it by the appropriate amount.

Answer 4

Entry: Prepaid expenses A/c dr to cash/bank A/c

Answer 5

debit prepaid expenses
credit cash