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.read more 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.read more (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.read more ( 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 entriesExamples Of Journal EntriesA journal entry example would be the country’s purchase of machinery, where the machinery account would be debited and the cash account would be credited.read more of expenses.

Examples of Expense Journal Entries

Below are the examples of journal entries for Expense.

Example #1 – Basic Expenses

Pass journal entry for the following expenses in the books of XYZ limited for the year 2018:

Solution

Journal Entries in the books of ABC limited

Example #2 – Miscellaneous Expenses

Pass the journal entries for the following expenses in the books of ABC Limited for the year 2018-19:

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. read more recording – One should record the expense in the profitability statement for the period it is prepared and 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.read more.Should be as per Applicable Regulations – All the applicable local laws and accounting standards should be followed for recognizing expenses and adequately disclosed.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 unlawful 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 be acceptable by the government.

Conclusion

Thus, an expense journal entry is of utmost importance, as the same will directly reduce the company’s revenue. Moreover, an expense is also very important, as this can be used to incorporate the fraudulent transaction and to window dressWindow DressWindow dressing in accounting refers to the intentional manipulation of financial statements by company management in order to present a more favourable picture of the company to users of the financial statement before it is released to the public.read more 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 entries for Expenses along with detailed explanations. Here are the other articles in accounting that you may like –

  • Top Examples of Profit and Loss StatementJournal Entries for Accrued ExpenseExpense AccountingJournal Entry for Depreciation