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    suryakant's Avatar
    suryakant Posts: 1, Reputation: 1
    New Member

    Mar 16, 2009, 06:24 AM
    Prepaid expenses
    If an expense is paid for service contract for one year
    How the account to be journalised
    hamzashakaa's Avatar
    hamzashakaa Posts: 161, Reputation: 8
    Junior Member

    Mar 16, 2009, 09:21 AM

    When you pay the amount of the contract you should record the following entry:

    Dr. Prepaid expenses
    Cr. Cash

    Then at the end of each month you should amortize the portion of prepaid expense to an expense account by recording the following entry:

    Dr. Services expense
    Cr. Prepaid expense

    Lets assume that you paid an amount of 12,000 usd on the first of December 2008. The entry at that date will be as follows:
    Dr. Prepaid service expense 12,000
    Cr. Cash 12,000

    At the end of December 2008 you should record the following entry:
    Dr. Service expenses 1,000 (12,000/12 months)
    Cr. Prepaid service expense 1,000

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