Expense Journal Entry Guide
Fundamental to the accounting in a business are journal entries. Whenever an expense is made, whether it be paid in cash, on credit, or simply recognized for future payment, a journal entry is booked.
As an expense account is an income statement account, it has a natural debit balance. This means that when expenses go up, there are recorded with a debit. When expenses go down, they go down with a credit.
Journal Entries for Cash Expenses
Whenever an expense is paid for in cash, a journal entry to record this activity is required to be made. As the expense is going to increase with a debit, the cash paid will decrease with a credit. This is because the natural balance for cash is also debit, and a balance sheet account. The entry for a $1,000 expense is as follows.
Dr. Expense $1,000
Cr. Cash $1,000
Journal Entries for Expenses Payable
When an expense is incurred but not yet paid, an entry to accrue this expense is made. The expense is recognized at the point it is incurred – specifically, when the benefit of that expense is received. Therefore, if the bill is not paid at that same time, a payable should be recorded in order to recognize the liability of having to pay the cash at some later point. The entry for a $1,000 expense payable accrual should be recorded as follows.
Dr. Expense $1,000
Cr. Accounts Payable $1,000
Journal Entry for Payment of Accounts Payable
When an expense payable is recorded as A/P, it should be taken off the books once finally paid. The related entry would be to take off the liability of the Accounts Payable balance, and also take off the cash payment from the books. The end result would be that the expense would remain on the income statement, and cash removed from the balance sheet. The entry is recorded as follows:
Dr. Accounts Payable $1,000
Cr. Cash $1,000
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