if you want to pass only one entry then

exp a/c dr 200

To Profit & loss adjustment a/c

The Rectification entry would be(Assuming Prepaid exp. of Rs. 6000)

Prepaid Exp. A/c       Dr.      12000

To      Prior Period Income          12000

Rationale Behind this:

1) Prepaid exp. a/c was credited with Rs. 12000(6000 last year & 6000 current year), which should be closed by debiting the amount with Rs. 12000

2) Last year by virtue of entry, rent a/c should have got the credit of Rs. 6000 but debiting the amount effected in Rs. 12000 extra charged, which were reversed in current year as Prior Period income

3) In the current year, rent a/c should have been debited with Rs. 6000, which was automatically done with the accountant passing the incorrect entry

4) Prior period income should be transferred to P&L and appropriate disclosure should be given in financial statements, if material

The Rectification entry would be(Assuming Prepaid exp. of Rs. 6000)

Prepaid Exp. A/c       Dr.      12000

To      Prior Period Income          12000

Rationale Behind this:

1) Prepaid exp. a/c was credited with Rs. 12000(6000 last year & 6000 current year), which should be closed by debiting the amount with Rs. 12000

2) Last year by virtue of entry, rent a/c should have got the credit of Rs. 6000 but debiting the amount effected in Rs. 12000 extra charged, which were reversed in current year as Prior Period income

3) In the current year, rent a/c should have been debited with Rs. 6000, which was automatically done with the accountant passing the incorrect entry

4) Prior period income should be transferred to P&L and appropriate disclosure should be given in financial statements, if material

Brother in as similar fashion I Have explained for Rs. 100

Originally posted by : smarty_2010
	EXP A/C DR... TO P&L APP LIAB A/C... AMOUNT WILL BE DOUBLE THE ACTUAL AMOUNT AS IT IS A RECTIFICATION / REVERSAL JV PASSED FOR PY.. (BEING PROFIT UNDERSTATED IN PY) (THIS IS THE ONLY ANSWER TO YOUR PROB)

I would like to go with Smarty's reply...............

The above answer is on the assumption that ENTIRE "Prepaid Expenses" were to be booked in the Next FY. The treatment would be different if Prepaid Expenses were to be spread over 2 or more FY's. 

Originally posted by : Shiva Kumar
	Originally posted by : Gandharv lets thought it simple way:- exp assumed - rs. 100 1. wrong entry passed (previous year)- Exp a/c dr. 100       to PP Exp a/c. 100 2. Right Entry shud be passed (previous year)- PP Exp A/c dr. 100      to Cash A/c. 100 3. Rectification Entry to be passed(in current year)(recommended)- PP Exp A/c dr. 200      To prior period Exp. A/c (Exp. A/c) 100      To cash A/c 100 4. Current status - assuming expenditure has been incurred in current year, now the entry no 1 will be passed (recommended):- Exp. A/c dr. 100        To PP Exp. A/c. 100. Thus in the current year only entry no 3 and 4 will be passed. Prior period entry will be shown in profit and loss a/c as a separate head as per disclosure requirements of AS-5. Ultimately cash effect will have to be generated by crediting cash or in other words, one entry to be passed:- PP Exp. A/c dr. 100        to cash a/c.   100 (Not recommended)    Dear Ghandarav, Please forgive me, you cannot pass this entry. Where was the mistake in cash in the first place. Sorry to say, please improve standard. Good Luck Shiva

well sir, please dont say any thing like forgive etc, as we are here to help each other... i read ur ans, now a very simple question for u sir, just tell me how will u 'book' a prepaid expense in a year?? i will be thank ful for ur answer, and about my standards, u dont have to worry about.... waiting 4 ur answer sir.

HMMMM.......SO MANY REPLIES & DIFFERENT VIEWS.........

IN MY OPINION,IT SHOULD BE-

EXP. A/C              DR.

                        TO                  EXPENDITURE(OR INCOME) RELATED TO PRIOR YEAR A/C

THIS WOULD NULLIFY THE EFFECT OF DOUBLE BOOKING OF EXP. LAST YEAR AND UNDER BOOKING OF EXP. THIS YEAR.

ALSO I REQUEST U ALL 2 KINDLY GO THROUGH THE QUERY CAREFULLY,AS I'V MENTIONED 2 ENTRIES IN IT.

You cannot just change your query and make the previous answers look all wrong......

Don't simply change the question, if required you should have started another thread...

Ok, Now to the answer to your revised question (ASSUMING There will be no further revisions)

Option 1

Dont pass any ENTRY - NO ENTRY.

Reason:

1. If the amount is Immaterial

2. Logic is that, if say, the TOTAL Expense is Rs.10,000 paid in 08-09 50% assumed as prepaid.

The expense should be spread over 08-09 and 09-10, i.e., the total expense debited to P/L a/c should be Rs.10,000

In the sequence of wrong entries,

In 08-09        Rs.15000 Debited to Expense (Initial Debit of Rs.10,000 while paying the expense and Rs.5000 debited while wrongly passing the entry earlier)

In 09-10        Rs.5000 Credited to expense A/c (Again because of wrong entry)

The Net amount taken to P/L a/c for both the years seen together is only Rs.10000 (Rs.15000Dr-Rs.5000Cr). Hence, as the Net amount is same as the actual incurred amount and as the amount seems immaterial, forget it.

A wrong entry has been set right by another wrong entry.....

OPTION 2

This option may be chosen, if

1. The amount is material

2. You are all for CORRECT Accounting

If you, in the rectification entries passed, the prepaid account is Debited for Rs.10000 and Credited for Rs.10000, so a net entry may be passed as

Expense  A/c    Dr        Rs.10,000

      To Prior Period                         Rs.10000

Note: 1.

If the rectification entry was passed in 08-09 itself, the Credit should have been given to the expense account.

As the entry is passed in 09-10, we are crediting the Prioe period A/c

Shiva

YA SHIVA, THATS WHAT I'V SUGGESTED IN MY RECENT REPLY( JUST ABOVE URS )& ALSO AT THE START OF THE THREAD............

ALSO 1 THING SHIVA, DON'T GET ME WRONG BRO, MY INTENTION WAS NEVER 2 PROVE EVERY1 WRONG, IT WAS JUST AN OMISSION ERROR.....................AND I TOTALLY ADMIT IT.

REGARDS

SAHIL

BUT SHIVA,I ALSO GET THE FEELING THAT IT CAN BE-

EXPENSES A/C          DR,         10000

                            TO          PRIOR PERIOD EXP.(INCOME) A/C     5000

                            TO          PREPAID EXP. A/C                                   5000

BCZ WE CANNOT TOUCH LAST YEAR'S PREPAID EXP. AMT., BUT WE HAV 2 REDUCE THE PREPAID EXP. OF THIS YEAR WHICH HAVE BEEN OVERBOOKED.................WT DO U SAY?

Originally posted by : SAHIL
	BUT SHIVA,I ALSO GET THE FEELING THAT IT CAN BE-   EXPENSES A/C          DR,         10000                             TO          PRIOR PERIOD EXP.(INCOME) A/C     5000                             TO          PREPAID EXP. A/C                                   5000   BCZ WE CANNOT TOUCH LAST YEAR'S PREPAID EXP. AMT., BUT WE HAV 2 REDUCE THE PREPAID EXP. OF THIS YEAR WHICH HAVE BEEN OVERBOOKED.................WT DO U SAY?

 SAHIL, I will tell you a way to understand these entries,

If I pass the entry above then,

Prepaid A/c will show a credit balance, whereas it should show a nil balance!!!!!.

See, they have wrongly given credit in the last year and debited in the current year, so the balance in prepaid acount is already NIL.

If you pass your entry, then prepaid account will show a credit balance??. Which should not happen, then how will you knock off that credit balance. Do not confuse too much

Draw up Ledger extract in the following three scenarios and you will understand the concept.

1. Correct Entries - Prepaid Ledger and Expense Ledger

2. Wrong Entries with your entries

3. Wrong entries with my Entry above.

Check which will give you the correct profit figure,

Shiva

Originally posted by : SAHIL
	IN ONE OF THE DEPARTMENTS,WHILE BOOKING THE PREPAID EXP. FOR YR. 08-09, THE ACCOUNTANT WRONGLY CREDITED THE 'PREPAID.EXP. A/C' AND DEBITED THE 'EXP A/C'. THEN FURTHER, WHEN IN THE NEXT YEAR STARTING, THE REVERSAL WAS 2 B PASSED FOR PREPAID EXP., HE AGAIN WRONGLY DEBITED 'PREPAID EXP.' A/C AND CREDITED THE 'EXP.'A/C............. NOW WE'V 2 PASS THE RECTIFICATION ENTRY IN THE CURRENT YR.,

 hi ... i read many replies ... but due to they being many and none of them is concluded i want to add my solution to the problem and its up to SAHIL and the EXPERTS to decide and pls conclude the post...

Corect Entry for pre paid  expenses

Prepaid Expense   Dr

   To Cash /bank

( Its not To Expense A/c as the expense has not accrued but it had incurred... )

From here before i proceed, i would like sahil to clarify me a few points . Was the expense incurred or accrued. Did you find enough evidence in your audit to call it a prepaid expense.i.e. an expense which has incurred in current year but relating to the next year.Just because the account is named by the accountant a prepaid expense . the expense does not become a prepaid expense. This is one and next is if your answer to the above question is yes... then first check where did he pass the entry relating to cash flow.He must have passed entry or ommitted it.If he passed then pls find out that entry if ur sure that he might not have passed then .... keeping the entries aside ... give moc for it. rectification entries can be sugessted once my doubts are cleared. I hope they are genuine and u understood wt i am asking for.

@ MAHESH

ANSWER TO 1ST HALF OF UR QUES-    YES

2ND HALF-  I SCRUTINISED THE LEDGER IN DETAIL AND FOUND THAT ALL IS WELL EXCEPT THE EXCEPT THE ERROR MENTIONED ABOVE ( DR. INSTEAD OF CR.)

ALSO 1 THING, V R DOING THE AUDIT OF H.O. OF THE BANK,SO NO MOCs HERE,K BRO? FOR ANY CORRECTION,JUST PASS NEW VOUCHER IN A LOT.

WHEN I'D POSTED THIS POST, I'D ALREADY PASSED THE RECTIFICATION ENTRY AS-

EXP. A/C         DR.

      TO      EXP. RELATED TO PRIOR YEAR A/C

(( OR U CAN  SAY INCOME ALSO))

I JUST WANTED 2 INVITE THE VIEWS OF CA SCHOLARS PRESENT HERE IN THE CLUB..............

& AS U CAN C,THERE R ALREADY MANY,EVEN I'V NOT READ THEM ALL!

ok.then lets continue this post... for all the experts ...

how far do you think the entry is right ... pls read my post so that you will understand my doubt.