suryakant
Mar 16, 2009, 06:24 AM
If an expense is paid for service contract for one year
How the account to be journalised
hamzashakaa
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