An expense journal entry is a critical accounting entry that reflects the expenditures incurred by an entity.
It is used to record the cost of assets or services enjoyed, and it is an essential part of the double-entry accounting system.
When recording an expense, the expense account is debited, and the cash or accounts payable account is credited.
This entry is important for accurately reflecting the company’s financial position and for constructing financial statements.
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Bad Debt Expense
When a company needs to record a bad debt expense, it typically involves a journal entry that debits the bad debt expense account and credits the allowance for doubtful accounts.
This entry reflects the portion of the receivables that the company believes is uncollectible.
The bad debt expense is classified as a sales and general administrative expense and is posted to the income statement.
Debit: Bad Debt Expense $100
Credit: Allowance for Bad Debts $100
It is important to note that there are two methods of recording bad debt: the direct write-off method and the allowance method.
The direct write-off method is only appropriate for small, immaterial amounts, while the allowance method involves estimating the bad debt expense within reasonable parameters
Prepayment Expense Journal Entry
A prepayment expense journal entry is a type of accounting entry that records the payment of an expense before it is actually incurred.
Prepaid expenses are initially recorded as assets on the balance sheet, and then gradually recognized as expenses over time as they are used up.
To create a prepaid expenses journal entry, debit the Prepaid Expense account, which is an asset account, and credit the corresponding account used to make the payment, such as a Cash or Checking account.
The initial journal entry for a prepaid expense does not affect a company’s financial statements, but the adjusting journal entry does affect both the income statement and balance sheet.
When a company pays rent in advance for a year, it records the payment as a prepaid expense. Here’s how the journal entry would look like:
Debit: Prepaid Rent (Asset account) $1,000
Credit: Cash (or Checking account) $1,000
When the prepaid rent is recognized as an expense over time as it is used up, an adjusting journal entry is needed.
This entry would be:
Debit: Rent Expense (Expense account) $500
Credit: Prepaid Rent (Asset account) $500
This adjusting journal entry affects both the income statement and balance sheet, as it recognizes the prepaid rent as an expense and reduces the prepaid rent balance
A supplies expense journal entry is used to record the cost of supplies that a company has used during a specific reporting period.
There are two ways to account for supplies:
1. Expense supplies when they are purchased
In this method, the company records the expense at the time of purchase.
The journal entry for this method is to debit the supplies expense account for the cost of the supplies used and credit the cash account for the same amount.
Debit: Supplies Expense $50
Credit: Cash $50
2. Record an asset when supplies are purchased, then expense the asset over time as supplies are used up
With this method, the company initially records the supplies as an asset.
At the end of each period, the company counts the total amount of supplies on hand and expenses the difference between the initial balance and the ending balance.
The journal entry for this method involves debiting the supplies expense and crediting the investory supplies account for the reduction in the supplies asset.
Debit: Supplies Expense $100
Credit: Supplies Inventory $100
In both methods, the supplies expense account is debited to recognize the cost of the supplies used, and the supplies inventory account is credited to reflect the reduction in the amount of supplies on hand.
An accrued expense journal entry is used by businesses to record expenses incurred throughout an accounting period that have not yet been paid during that period.
In accrual accounting, expenses are recognized when they are incurred, not when they are paid.
This method results in more consistent financial results, as companies can include recurring expenses in their financial statements.
The journal entry for accrued expenses involves debiting the appropriate expense account and crediting an accrued liabilities account.
Let’s say a company has incurred $1,000 of interest expense on a bank loan at the end of the accounting period, but the payment is not due until the following month.
The journal entry to record the accrued interest expense would be:
Debit: Interest Expense $1,000
Credit: Accrued Interest Payable $1,000
A payroll expense journal entry is a record of how much a company pays its employees and the overall payroll expenses.
It is an accounting method used to record the compensation paid to employees and is incorporated into an entity’s financial statements through the general ledger.
The payroll journal entry should be added to the general ledger each time payroll is processed.
The primary payroll journal entry records the gross wages earned by employees, as well as all withholdings from their pay, and any additional taxes owed to the government by the company.
Wages Expense 4,000
Health Insurance Premiums 100
Federal Income Tax Withholding 200
State Income Tax Withholding 50
Social Security 75
Note: Employer’s share not yet included.
A utilities expense journal entry is a financial record of the cost incurred by a business for using basic utilities such as electricity, water, gas, and heating.
When a utility bill is received, the typical journal entry involves a debit to the Utilities Expense account and a credit to the Accounts Payable or Utilities Payable account, depending on whether the bill has been paid or not.
If the bill is paid in cash, the entry would include a debit to Utilities Expense and a credit to Cash.
If the bill is paid using a credit card, the entry would include a credit to Accounts Payable instead of Cash.
Debit: Utilities Expense: $1,200
Credit: Accounts Payable $1,200
An advertising expense journal entry is a record of the cost incurred in promoting a business.
The basic journal entry to record advertising expenses is a debit to Advertising Expense and a credit to either Cash or Accounts Payable, depending on the specific transaction.
Debit: Advertising Expense $100
Credit: Cash $100
If the business pays for advertisements in advance, the journal entry would involve a debit to Prepaid Advertising and a credit to Cash.
Debit: Prepaid Expense - Advertising $100
Credit: Cash $100
When the advertising service has been performed, prepaid advertising is transferred to advertising expense through an adjusting entry, which is a debit to Advertising Expense and a credit to Prepaid Advertising.
Debit: Advertising $100
Credit: Prepaid Expense $100