CMA Poornima Madhava
(CMA)
(13112 Points)
Replied 16 June 2021
Assuming that you follow mercantile system of accounting, advance paid will appear under current assets in the balance sheet.
As and when the expense is incurred, debit the expense to P&L and credit the asset account.
Others
(7 Points)
Replied 16 June 2021
Ramachandran S
(Chartered Accountant)
(717 Points)
Replied 16 June 2021
1. When advance payment is made, debit pre-paid expense and credit bank.
2. When actual expense is incurred, debit expense credit pre-paid expense.
3.The entry debiting pre-paid expense and crediting expense is wrong. Probably, this entry may be needed, only if, by mistake, when advance is made, expense was debited instead of pre-paid expense. It is a case of rectification entry.
CMA Poornima Madhava
(CMA)
(13112 Points)
Replied 16 June 2021
When the payment is made:
Prepaid expense (or vendor account) Dr
To Bank
When expense is accounted:
Expense Dr
To Prepaid expense (or vendor account)
CA Subhankar Basu
(Chartered accountant )
(318 Points)
Replied 17 June 2021
CAclubindia
