Journal Entries of Accrued Expenses

Accrued expenses are those whose service we have taken but payment has not been done by us. In
other words, these expenses are recognized before actual payment. So, it is necessary to record to
record it in the books because we have to show our total expenses in the profit and loss account whether
it is paid or not as
per the accrual concept of accounting. Following journal entry will be passed.

Expense Account Debit

Accrued Expense or outstanding expense or expense payable Account Credit

Explanation of Above journal entry: We have debited expense account because whether expense is
paid or not, it reduce our total incomes. So, it will be debited. Accrued expense increases the current
liability. So, we have credited accrued expense.

Accrued expense or outstanding expense will be added into the expense when we show the total
expense in the debit side of profit and loss account. Accrued expense will also show in the liability side of
balance sheet.

Example of the Journal Entries of Accrued Expenses

1. Accrued Commission on Sales

ABC Co. pays salesman a 10% commission on sales. Salesman sold Rs. 10,00,000 goods up to the end
of 31st DEC. 2011. ABC company has paid Rs. 70,000 commission to salesman. How much does ABC
Co. accrue in commissions on December 31 and what journal entry of accrued commission will be
passed.

Total commission = 10,00,000 X 10% = Rs. 1,00,000

Total paid commission = 70,000

Accrued Commission = 1,00,000 - 70,000 = 30,000

Commission Account Debit 30,000

Accrued Commission Account Credit 30,000

31st Dec. 2011

When ABC company will pay the Accrued commission to salesman on 15 Jan. 2012, then following entry
will be passed

On 15th Jan 2012

Accrued Commission Account Debit 30,000

Bank Account Credit 30000

2. Accrued Salary

Suppose, ABC company gets the salary at the end of the month. Because 31st DEC. 2011 is the closing
of financial of company. Company pays the salary of Rs. 5,00,000 on 10 the Jan. 2012. This salary of Rs.
5,00,000 will show as the 2011's expense and current liability by following entry.

On 31st Dec. 2012

Salary Account Debit 5,00,000

Accrued Salary Account Credit 5,00,000

On 10th Jan. 2012

Accrued Salary Account Debit 5,00,000

Bank Account Credit 5,00,000

How to pass the Journal Entry of Service Tax in the books of Company
Example

Suppose service tax is 10 % and Company receives total money for providing service Rs. 100000 , then
service tax is Rs. 10000 .

1. Now when , company receives money , the following journal entry will pass .
Ist way
Bank Account Debit 100000
Party of Service uses Account credit 90000 ( Net Amount )
Service Tax Account Credit 10000

Because , party has given us 10000 for paying Govt. as the amount of service tax . So , service tax is our
current liability and When can also treat above transaction as following way

or

Second way

Bank Account Debit 100000

Party of service uses account 100000

Here we deem that party has given full amount and , it is our duty to pay service tax .
So above both way is correct

2nd journal entry

When we paid service tax to service tax department

Service Tax Account Debit 10000

Bank Account Credit 10000

Journal Entries of TDS

TDS means tax deducted at source. If tax is deducted from assessee's income and deposited in the Govt.
account, its journal entries will be in the books of company. For example ABC company used the service
of MR. N person. Now, ABC company will pay the amount of MR. N person. If TDS will apply as per
income
tax law, ABC will deduct TDS and net amount will pay to Mr. N person. At that time following journal
entries will be passed in books of ABC company and Mr. N Person.

In the Books of ABC Company

1. When company pays the money and deduct the TDS.

Indirect Expense Account Debit

Mr. N Person Account Credit

TDS of Mr. N Person Account Credit

Explanation of Above Entry with Example : Suppose, ABC have to pay Rs. 1,00,000 pay rent to Mr.
A person. Suppose, it TDS is Rs. 5000. Now, the net liability of Mr. N person will be of Rs. 95000. and
TDS liability will be Rs. 5000 because both amount is payable to different persons. So, Mr. N person
account will be credited with Rs. 95000 and TDS account will be credited with Rs. 5000. Because total
Rent is the indirect expense, so Rs. 1,00,000 will be debited. Company will follow the law and total
amount will be divided between assessee and govt.
Rent Account Debit 1,00,000

Mr. N Person Account Credit 95000

TDS Credit 5000

Before Actual Payment to Creditor for expense and TDS, both will be shown in the liability side.

Liability Side of Balance Sheet

Mr. N Person Account (Creditor for Rent ) = Rs. 95000

TDS = Rs. 5000

2. When Payment is done to Creditor for our expense and TDS, then following entry will be
passed.

Mr. N Person Account Debit 95,000

TDS Account Debit 5000

Bank Account Credit 1,00,000

In the Books of Mr. N Person (Assessee)

1. When his earning from Rent is due.

ABC Company Account Dr. 95000

TDS Dr. 5000

Rent Account Cr. 100000

2. When Assessee Gets net amount of his rent

Bank Account Dr. 950000

ABC Company Account Cr. 95000

3. When Govt. Refunds the TDS to Assessee

When Mr. N Person fills his regular income tax return and he refunds some of his TDS. Suppose, it is the
Rs. 1500

Bank Account Dr. 1500

Refund of TDS Cr. 1500

Journal Entry Examples of Discount Allowed

Discount allowed is the loss of business but there is big strategy of long term gain. If any customer will
pay us in cash at this time or before the time when he will actually pay for his goods bought goods on
credit, then, we will allow discount. With this, we can get our cash from debtors fastly. Secondly, it will help
to increase working capital for day to day expenses. So, many organisations have clear policy to allow
discount.

Discount allowed is deduction from purchase price of customer, if he pay within time or before time. In
other words, it is encourage to buyer for buying with cash rather than buying on credit.

Discount allowed must be recorded both vendor and buyers journal. In Vendor book, it is treated as
discount allowed and this cash discount will become loss of business and in the day book of buyer, it will
become discount received account which income account.

1st Example:
Suppose Ram has sold goods to Sham on Credit of Rs. 50000 and it is the term of agreement that if
Sham pays within 20 day of this purchase, he can receive 10% discount. If Sham pays within 20 days
then Treat cash discount in day book of both parties.

Day book of Seller ( Ram )

Bank Account Dr. 45000

Discount Allowed Account Dr. 5000
Sham Account Cr. 50000

Day book of Buyer ( Sham )

Ram Account Dr. 50000

Bank Account Cr. 45000
Discount Received Account Cr. 5000

2nd Example:
Jan.2 Paid cash to Mohan Rs. 9700
and discount allowed Rs. 400

Jan. 5 Received Cash from Arjun Rs. 5000

and Discount allowed to him Rs. 100

Jan. 11 Goods Sold to Hari Rs. 31000

Jan. 13 Hari Returned Goods Rs. 1000

Jan. 15 Received cash from Hari Rs. 28000 in full settlement of his account

Jan. 21 Sold Goods to Ganesh of List Price of Rs. 70000 at 10% trade discount

Jan. 24 Purchased goods from Raj of the list price of Rs. 20000 at 20% Trade Discount

Pass the Journal Entries

Jan 2

Mohan Account Dr. 10100

Cash Account Cr. 9700

Discount Received Account Cr.400

Jan. 5

Cash account Dr. 5000

Discount Allowed Account Dr. 100

Arjun Account Cr. 5100

Jan. 11

Hari Account Dr. 31000

Sales Account Cr. 31000

Jan. 13

Sales Return Account Dr. 1000

Hari Account Cr. 1000

Jan. 15

Cash Account Dr. 28000

Discount Allowed account Dr. 2000

Hari Account Cr. 30000

Jan. 21

Ganesh Account Dr. 63000

Sales Account Cr. 63000

Jan. 24

Purchase Account Dr. 16000

Raj Account Cr. 16000

Remember : We do not make the trade discount account because we show net amount in purchase or
sale account after deducting from trade discount. Only discount allowed account will make.

Accounting Adjustment Examples

. Closing Stock at the end of year = Rs. 10,000

Adjustment Entry

Closing Stock Account Dr. 10000

Trading Account Cr. 10000

Treatment in Trading Account

Shown Rs. 10000 closing stock on the credit side of trading account

Treatment in Profit and Loss Account

No

Treatment in Balance Sheet

Shown Rs. 10,000 closing stock on the assets side

2. Outstanding expenses ( wages Rs. 15000+ salary Rs. 5000) = Rs. 20,000

Adjustment Entry

Wages Account Dr. 15000

Salary Account Dr. 5000

Outstanding Wages Account Cr. 15000

Outstanding Salary Account Cr. 5000

Treatment in Trading Account

If outstanding expense is direct expense, then it will add to respective direct expenses. For example, Rs.
15000 is outstanding wages, it will add in wages account in the debit side of trading account.
Treatment in Profit and Loss Account

balance Rs. 5000 is of outstanding salary which will add in salary account in the debit side of profit and
loss account

Treatment in Balance Sheet

Shown total outstanding expenses on the liabilities side of balance sheet.

3. Prepaid Expenses ( Carriage inward Rs. 12000 + Carriage outward Rs. 10000) = Rs. 22000

Adjustment Entry

Prepaid Carriage Inward Account Dr. 12000

Prepaid Carriage Outward Account Dr. 10000

Carriage Inward Account Cr. 12000

Carriage Outward Account Cr. 10000

Treatment in Trading Account

If prepaid expense is direct expense, then it will deduct to respective direct expenses. For example, Rs.
12000 is prepaid carriage inward, it will deduct from carriage inward account in the debit side of trading
account.

Treatment in Profit and Loss Account

balance Rs. 10000 is of prepaid carriage outward which will deduct from carriage outward account in the
debit side of profit and loss account

Treatment in Balance Sheet

Shown total prepaid expenses on the asset side of balance sheet.

4. Depreciation of Office Machine = Rs. 40000

Adjustment Entry

Depreciation of Office Machine Account Dr. 40000

Machine Account Cr. 40000

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Shown Depreciation Rs. 40,000 in the debit side of profit and loss account.
Treatment in Balance Sheet

Deducted Rs. 40000 depreciation from machine in asset side of balance sheet.

5. Accrued Income = Rs. 5000

Adjustment Entry

Accrued Income Account Dr. 5000

Income Account Cr.

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Added Rs. 5000 to respective income on credit side.

Treatment in Balance Sheet

Shown Rs. 5000 on the asset side of balance sheet.

6. Unearned Income = Rs. 7000

Adjustment Entry

Income Account Dr. 7000

Unearned Income Account Cr. 7000

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Deducted Rs. 7000 from respective income on credit side of profit and loss account.

Treatment in Balance Sheet

Shown total unearned income on the liabilities side of balance sheet.

7. Interest on Capital = Rs. 20000

Adjustment Entry
Interest on capital account Dr. 20000

Capital Account Cr. 20000

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Shown Rs. 20000 interest on capital on debit side of profit and loss account

Treatment in Balance Sheet

Added to the capital on the liabilities side.

8. Interest on Drawing = Rs. 15000

Adjustment Entry

Drawing Account Dr. 15000

Interest on Drawing Account Cr. 15000

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Shown on the Credit side of profit and loss account

Treatment in Balance Sheet

Added to drawing and then deducted from capital in the liabilities side of balance sheet.

9. Interest on Loan = Rs. 24000

Adjustment Entry

Interest on Loan Account Dr.

Loan Account Cr.

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Shown on the debit side of profit and loss account

Treatment in Balance Sheet

Added to Loan on the liabilities side of balance sheet.

10. Bad Debts = Rs. 60000

Adjustment Entry

Bad debts account Dr. 60000

Debtors Account ( Mohan+Sohan +Sita ) Cr. 60000

Treatment in Trading Account

No

Treatment in Profit and Loss Account

Added to bad debts Rs. 60000 (given in the trial balance ) on the debit side of profit and loss account.

Treatment in Balance Sheet

Deducted Rs. 60,000 from debtors on the assets side of balance sheet.

Related : Adjustments of Final Accounts