This article reviews some common journal entries used when recording transactions related to Expenses.
Scenario 1:
If Cash is paid for a service/good that has not been received:
This journal entry shows that the entity has paid for a service that has not yet been rendered. Despite being called an “Expense”, the “Prepaid Expense” is considered an asset.
Once the Expense has been incurred, the journal entry will look like this:
This journal entry shows that entity has incurred an expense, that had been paid in advance. The entry empties out the Asset account and appropriately records the Expense used.
Scenario 2:
If an Expense has been incurred, but no cash has been paid:
This journal entry creates a liability “Accounts Payable”, since the entity has not yet paid its obligations.
Once Cash has been paid:
This empties out the Accounts Payable account and removes from the Cash balance.
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