What are prepaid expenses, those expenses which we paid ahead of time but have not availed the service yet, or we can call them such expenses which we have paid but we will get its service in future, if I say That we have paid in advance, then it is called prepaid expense, and what we pay is an asset for that.
How to Calculate Prepaid Expenses
People must be thinking that prepaid expenses are an expense, then why they are called assets, the reason is that we have not used the facility for which we are paying money, no company or person will get the prepaid expenses in future. for the service
How to Create Prepaid Expense Journal Entry in tally
When a company or a person makes prepaid expenses, they are an asset to him, because the company pays the expense every month, and if the company pays that expense in advance, that expense will be treated as a prepaid expense by the company. It is said that prepaid expenses (assets) are the assets of the company, let me explain you by giving an example of an insurance company.
When a person insures Rs.120000/- for 12 months from an insurance company, that person has to pay Rs.10000/- every month, but if that person deposits Rs.120000/- together for the whole year If so, it becomes a prepaid expense.
How to Enter Prepaid Expenses voucher entry in Tally
Right now we have not paid the insurance company in this entry, have created a prepaid insurance account in which we have debited 120000 thousand and deducted cash from the company’s account, when making prepaid expenses account in tally it is always referred to as asset group. Keep in We haven’t paid the insurance company yet,
This entry has to be made when you make a payment to the insurance company.
In this you can see that we first created Prepaid Expense Account, debited Prepaid Expenses and credited Cash so that 120,000 was paid from the Company’s Cash Account for the whole year, after that we made an entry in which we said Insurance Company. Which we had to pay every month, and submit prepaid expenses which were our assets, and we have to make such entry every month, whereby the insurance company also pays 120,000 and our prepaid expenses (assets) will also be equal . Give,
Let me give you another example of surrogate so that you can understand
When a company has to pay rent, and it makes advance payment, its entry accounting is to be done as follows:
|cash / bank||xxxxxx|
We have done this by paying prepaid fares from the company.
You should also clarify that when you debit prepaid fare by way of cash or bank and credit cash, this entry should always be made in the payment voucher (F5), and when you make the second entry, you will receive the journal voucher (F7) will be found. ) must be entered
Common reasons for prepaid expenses
When a company, person or firm starts a business, it also has income and expenses, which include direct expenses, indirect expenses and expenses that are paid to a company or person seeking a service. Have to pay first, in simple language, such expenses which have been paid ahead of time and the service is yet to be taken,
Example of prepaid expenses
- Prepaid Rentals
- Prepaid interest
- Prepaid Insurance
- School Fees
- Prepaid Salary
- Light Bill
- Water Bill
- Telephone Bill
In prepaid expenses we can take all those expenses which we have to pay every week, month, year and these are the property of any company or person, as we will debit expenses and credit prepaid expenses. In this way the value of the asset will decrease, and will be liquidated later.