When an amount is paid in advance, then prepaid expense is debited, and expenses is credited. But since cash/cheque was paid for that prepaid expense, so why is cash or bank account not affected? If it is affected, then how is it shown in accounts?
Similar query for outstanding expenses, as well as income outstanding and received in advance.
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A/c treatment for prepaid expenses
Replies (10)
when an amount is paid in advance, the. prepaid exp is debited and CASH/BANK IS CREDITED , not exp.
Prepaid expenses entry
1.Initially when expense amount paid
Prepaid Exp A/c.....Dr
To Bank/Cash A/c ...Cr
2. Month end prepaid release entry
Expenses A/c ......Dr
To Prepaid Exp A/c...Cr
For Outstanding expenses
1. For initial Accrual entry
Expense A/c......Dr
To Outstanding Exp A/c ...Cr
2. When its paid
Outstanding Exp A/c...Dr
To Vendor/ Bank/Cash ...Cr
1.Initially when expense amount paid
Prepaid Exp A/c.....Dr
To Bank/Cash A/c ...Cr
2. Month end prepaid release entry
Expenses A/c ......Dr
To Prepaid Exp A/c...Cr
For Outstanding expenses
1. For initial Accrual entry
Expense A/c......Dr
To Outstanding Exp A/c ...Cr
2. When its paid
Outstanding Exp A/c...Dr
To Vendor/ Bank/Cash ...Cr
Mr. Anoopa, can you tell me what do you mean by 'prepaid release entry'. BTW, your 2nd entry is wrong, and my entry is right.
Please understand about prepaid concept and then think about entries.
I already know the concept and have consulted Class 11 Accountancy book before framing my question. You also need to look there before replying, I think. Both of you, Mr Anoopa and Mr. Trilochan are wrong in your journal entries explanation. I seriously did not consider such mistakes might happen on this forum, at least.
good joke..nitesh kumar
https://www.google.com/amp/s/www.teachoo.com/amp/829/252/Prepaid-Expense-Entries/category/Prepaid-Entries/ ...this may help you to understand... Mr. Nitesh , before you are telling someone is wrong , you should be Pro in that concept.
Mr Anoopa, Your journal entries are correct .
Anoopa, I am not asking something because I am pro in that topic and I would want to check others' knowledge, but because I have already checked it in my Class 11 accounts book, and couldn't find that thing there to my satisfaction. Or else, why would I post query on this forum? It is because of so-called pro experts like you and Trilochan that a genuine query remains unanswered; because firstly, what you are answering does not match with what I have studied in my book; and secondly, you people post unnecessary replies, rather than directly answering my questions. As a result, my query remains unanswered on this forum; as both of you have further confused me, instead of solving my problem. BTW, I consulted Siddiqui book of Class 11 Accountancy, which is considered one of the best ones.
Mr. Anoopa has very correctly explained Prepaid Journal entries. Mr. Nitesh Kumar needs to understand basic first of how journal entries work.
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