taken from the
Certain expenses or a portion of an expense has been paid in
advance. In the financial statements all expenses must be shown for a period of
one year or 12 consecutive months. The expense account must be adjusted at the
end of the financial year to reflect the correct expenses for the financial
year. The amount of the expense will decrease in the books of the business and
an asset is created - Prepaid expenses. It is regarded as an asset to the
business at the end of the financial year as the expenses are already paid for
and will be used in the next financial year.
To Identify, Enter the Transaction and to Post the Transaction to the Ledger:
Identify the account and calculate the prepaid
expenses or the expenses paid in advance. For example, after analysing the
pre-adjustment trial balance, it is discovered that the rates and taxes is
reflected as R(£)1 300. The monthly rates and taxes amounts to R(£)100 per
month. The payment made for rent was in respect for March. The rates and taxes
expense has been paid for 13 months.
The expense for the rates and taxes is already paid for in the current financial year for 13 months. Only 12 months is applicable to the current financial year. The payments for one month, which is the expense for March is a current asset for the business as at the end of the financial year as the benefit for the expense must still be received in the next financial year. To have the correct expenses reflect in the financial statements, the rates and taxes for the future period must be taken out of the expense account and transferred to the prepaid expenses account.
Enter the transaction in the General Journal.
Press the 
key on your keyboard or click on the 
speed button or icon. The Batch Type
selection screen will be displayed.
Select the General journal Batch Type and click
on the 
button. The General journal Batch Entry screen will be displayed. If
the correct contra account for the batch was not displayed on the Batch Type
selection screen, press the 
key on your keyboard or click on the
speed button or icon to set the options
for this batch. Note that it is recommended that the Amount Entry field be set
to allow both (debit and credit).
Enter the transaction in the batch. After
entering the transactions in the general journal, the transactions is as
follows:
Click on the 
speed button or icon or press the
key on your keyboard. Select the change the alias option.
Click on the 
speed button or icon or press the
key on your keyboard to post the transactions to the ledger. After
posting the transactions to the ledger, the entries should reflect as follows in
the ledger.
The expense accounts will result that the net profit be increased by the expense of R(£) 100, which is already paid as at the end of the financial year (28/29 February). It has also increased the current assets, as it is an expense, which has already been paid for the new financial year. Consequently, an expense of R (£)1 200 will be recognised as an expense and not R(£) 1 300.
The benefit for the expense will be received in the next financial year during March out of the Accrued Expenses account, which is a current asset. The amount that should have been paid for the financial year is the amount on the pre-adjustment trail balance less the amount of the payment in advance. The expenses are reduced (credited) and current assets are increased (debited).
To Identify, Enter the Transaction and to Post the Transaction to the Ledger:
Identify the account and calculate the prepaid
expenses or the expenses paid in advance. For example, after analysing the
pre-adjustment trial balance, it is discovered that the rates and taxes is
reflected as R(£)1 300. The monthly rates and taxes amounts to R(£)100 per
month. The payment made for rent was in respect for March. The rates and taxes
expense has been paid for 13 months.The expense for the rates and taxes is already paid for in the current financial year for 13 months. Only 12 months is applicable to the current financial year. The payments for one month, which is the expense for March is a current asset for the business as at the end of the financial year as the benefit for the expense must still be received in the next financial year. To have the correct expenses reflect in the financial statements, the rates and taxes for the future period must be taken out of the expense account and transferred to the prepaid expenses account.
Enter the transaction in the General Journal.
Press the key on your keyboard or click on the speed button or icon. The Batch Type
selection screen will be displayed. Select the General journal Batch Type and click
on the button. The General journal Batch Entry screen will be displayed. If
the correct contra account for the batch was not displayed on the Batch Type
selection screen, press the key on your keyboard or click on the
speed button or icon to set the options
for this batch. Note that it is recommended that the Amount Entry field be set
to allow both (debit and credit).Enter the transaction in the batch. After
entering the transactions in the general journal, the transactions is as
follows:
Click on the speed button or icon or press the
key on your keyboard. Select the change the alias option.Click on the speed button or icon or press the
key on your keyboard to post the transactions to the ledger. After
posting the transactions to the ledger, the entries should reflect as follows in
the ledger.The expense accounts will result that the net profit be increased by the expense of R(£) 100, which is already paid as at the end of the financial year (28/29 February). It has also increased the current assets, as it is an expense, which has already been paid for the new financial year. Consequently, an expense of R (£)1 200 will be recognised as an expense and not R(£) 1 300.
The benefit for the expense will be received in the next financial year during March out of the Accrued Expenses account, which is a current asset. The amount that should have been paid for the financial year is the amount on the pre-adjustment trail balance less the amount of the payment in advance. The expenses are reduced (credited) and current assets are increased (debited).
