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 statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. and help in financial analysis and decision-making.
Expense Journal entry forms a significant part of:
- Capital expenditureCapital ExpenditureCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year. ( Balance Sheet Items)
- Revenue Expenditure( Profit and Loss statement items)
- Provisions( Both, Balance sheet and Profit and Loss statement items)
- Deferred revenue expendituresDeferred Revenue ExpendituresDeferred revenue expenditure is the expenditure incurred in current accounting period but is realized in later accounting periods. This expenditure might be written off in the same financial year or over a period of a few years. ( 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 entry for Expense.
Example #1 – Basic Expenses
Pass journal entry for following expenses in the books of XYZ limited for the year 2018:
|Sr No||Expense Description|
|1||The bad debtBad DebtBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation. of $ 46000 writes 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;|
Journal Entries in the books of ABC limited
Example #2 – Miscellaneous Expenses
Pass the journal entries for following expenses in the books of ABC Limited for the year 2018-19:
Journal Entries in the books of ABC limited
Points to be Considered
The following are the important points while passing the journal entry.
- Accrual-basedAccrual-basedAccrual Accounting is an accounting method that instantly records revenues & expenditures after a transaction occurs, irrespective of when the payment is received or made. recording – One should record the expense in profitability statement for the period for which it is prepared and should record all expenses for preparing a financial position statementFinancial Position StatementStatement of Financial Position represents the current financial status of an entity in terms of assets and liabilities. This statement is used by the stakeholders and shareholders as it affects their investing decisions..
- Should be as per Applicable Regulations – All the applicable local laws and accounting standard should be followed for recognizing expenses and should be adequately discloses
- 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 illegitimate 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 acceptable by the government.
Thus, an expense journal entry is of utmost importance, as the same will directly reduce the revenue of the company. Moreover, an expense is also of much importance, 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.
This has been a guide to Expense Journal Entries. Here we discuss the most common examples of Journal entry for Expenses along with detailed explanations. Here are the other articles in accounting that you may like –