Expenses

Adjustments to Expenses

Payable & Prepaid

Adjustment to Expenses:

Expenses payable

• Services that are used up by a business but payment has NOT been made

• It is the amount owing and to be recorded as a current liability in the financial position

• Expense incurred (used up) for the year = Expenses paid + Expenses payable (used up but not paid)

• Expenses incurred is recorded in the financial performance to calculate the accurate expenses or services used up

Multiple Choice

Where is expense payble recorded?

• Owner's Equity

• Non-Current Liability

• Current Liability

• Current Asset

Adjustment to Expenses:

Prepaid Expenses

• Expenses that are paid in advance before services are used

• As the services can be used later, it is recorded as a current assets in the financial position

• Expenses incurred (used up) for the year = Expenses paid - Prepaid expenses (Paid but not used)

• Expenses incurred is recorded in the financial performance to calculate the accurate expenses or services used up

Multiple Select

What is expense incurred?

• It is the amount of services used up for the year

• It is the amount of services paid for the year

• It is recorded in the financial performance

• It is recorded in the financial position

• It is the accurate expenses for the year

Adjustment to Expenses:

Journal Entries for Prepaid Expenses

• Step 1: Record amount of expense paid

• Dr Name of Expense (E+)

• Cr Cash at Bank (A-)

• Step 2: Adjust for prepaid expense

• Dr Prepaid Name of Expense (A+)

• Cr Name of Expense (E-)

Adjustment to Expenses:

Journal Entries for Prepaid Expenses

• Step 3: Record the correct amount of expense incurred

• Dr Income Summary (Correct expense to be recorded in financial performance)

• Cr Name of Expense

Multiple Select

For the year ended 31 December 2020, the business issued cheque of $30000 to pay for 15 months rental up to 31 March 2021. Which of the following statement is true?

• Prepaid rent = $6000

• Rent payable = $6000

• Cash at bank decrease $30000

• Rent expense incurred for 31 December 2020 = $24000