Advance expenses paid entry for current year as well as in next year and where will we show it on Balance sheet and P&l
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Advance expenses entry
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Quick Summary
Assuming that you follow mercantile system of accounting, advance paid will appear under current assets in the balance sheet.
As and when the expense is incurred, debit the expense to P&L and credit the asset account.
Yes mam, while incurring the expense we will pass this entry
Prepaid expense A/c .. Dr
To Expense A/c
But, what about this entry
When we pay this in CY
Prepaid expense A/c ...... Dr
To Bank A/c
Prepaid expense A/c .. Dr
To Expense A/c
But, what about this entry
When we pay this in CY
Prepaid expense A/c ...... Dr
To Bank A/c
1. When advance payment is made, debit pre-paid expense and credit bank.
2. When actual expense is incurred, debit expense credit pre-paid expense.
3.The entry debiting pre-paid expense and crediting expense is wrong. Probably, this entry may be needed, only if, by mistake, when advance is made, expense was debited instead of pre-paid expense. It is a case of rectification entry.
When the payment is made:
Prepaid expense (or vendor account) Dr
To Bank
When expense is accounted:
Expense Dr
To Prepaid expense (or vendor account)
Yes @ CMA poornima...... ultimately we are nullifying the effect of advanced payment ( current assets) from earlier period to current period ...it's most common month end or year end journal entries.....
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