Expense Journal Entries

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21 Aug, 2024

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Journal Entry for Expenses

Expenses mean the cost of assets or services enjoyed. Expense Journal entries are the critical accounting entries that reflect the expenditures incurred by the entity. Journal entries are the base of accounting. All journal entries construct financial statements and help in financial analysis and decision-making.

Journal Entry for Expenses

Expense Journal entry forms a significant part of:

Capital expenditure (Balance Sheet Items)
Revenue Expenditure (Profit and Loss statement items)
Provisions (Both, Balance sheet and Profit and Loss statement items)
Deferred revenue expenditures ( Both, Balance sheet and Profit and Loss statement items)
Amortization of Assets (Profit and Loss statement items)
Amortization of Liabilities (Profit and Loss statement items)

Let us take some examples of journal entries of expenses.

Examples of Expense Journal Entries

Below are the examples of journal entries for Expense.

Example #1 - Basic Expenses

Pass journal entry for the following expenses in the books of XYZ limited for the year 2018:

Sr No		Expense Description
1		The bad debt of $ 46000 was written off due to the bankruptcy of debtor Ron Enterprise.
2		Salary @ $3000 for ten employees is still outstanding at the end of the year.
3		The insurance premium paid in 2012 of $ 20,000 for ten years; Recognize this year's accrued portion.
4		Paid commission @1% of the turnover of $ 1,000,000 to the sales head;
5		Paid Office expenses of $ 10,000;

Solution

Journal Entries in the books of ABC limited

Example #2 - Miscellaneous Expenses

Pass the journal entries for the following expenses in the books of ABC Limited for the year 2018-19:

Sr No		Expense Description
1		Salary paid to staff worth $ 50,000.
2		Paid Rent of plot to the owner of $ 15,000;
3		Paid insurance premiums of Key personnel @ 1000 for five employees;
4		The paid sundry expense of $ 8500;
5		Purchased Stationery worth $ 400.
6		Bought Furniture for $ 14000.
7		Due to weak business conditions, write off debtor worth $ 4500 out of $ 45000.
8		Depreciation charged on Building @ 10$, worth $ 100,000.
9		Pre-Paid maintenance of the building association of $ 50,000 for ten years;
10		A penalty of $ 3200 is still outstanding at the end of the year. However, the accountant believes in keeping the provision the same and recognizing it.

Solution

Journal Entries in the books of ABC limited

Points to be Considered

The following are the important points while passing the journal entry.

Accrual-based recording - One should record the expense in the profitability statement for the period it is prepared and all expenses for preparing a financial position statement.
Should be as per Applicable Regulations - All the applicable local laws and accounting standards should be followed for recognizing expenses and adequately disclosed.
Should be Legitimate - All the expenses recorded should be legitimate enough for business purposes only. It should be legally viable as per the law of the nation. The expense for the unlawful purpose should not be recorded in the books of account.
There must be proper Supporting Documentary Evidence - All the expenses recorded in the books should have valid documentary evidence with appropriate required fields and be acceptable by the government.

Conclusion

Thus, an expense journal entry is of utmost importance, as the same will directly reduce the company's revenue. Moreover, an expense is also very important, as this can be used to incorporate the fraudulent transaction and to window dress the financials. Hence, it is needed to be monitored diligently and needs to be reviewed periodically to ensure authenticity.