Journal Entry for Prepaid Phone

Prepaid phone is the service that customer paid for the service in advance and the phone company deducts the amount base on actual usage.

A prepaid phone is a mobile device that allows you to pay for your service in advance. This can be a great option for people who do not want to commit to a long-term contract, or for those who want to control their spending. With a prepaid phone, you can choose how much you want to spend on minutes, data, and texts each month.

You can also add money to your account as needed, so you never have to worry about overage charges. Prepaid phones are typically available from major carriers, and they can be used with any compatible provider. So if you’re looking for a flexible and affordable way to stay connected, a prepaid phone might be the perfect solution.

Journal Entry for Prepaid Phone

When the company pays for the prepaid phone, it needs to be recorded as the current assets. It is not yet recorded as an expense as the service is not yet consumed by the company.

The journal entry is debiting prepaid phone and credit cash.

The transaction will increase the prepaid phone which is the current asset on the balance sheet. The cash is reduced as normal when the company paid cash to the phone company.

When we top up the phone, we will receive the credit balance. During the month, the credit balance will be reduced based on the actual usage. The remaining balance will carry to the next month, it depends on the term and condition of the phone service provider.

At the end of the month, we need to calculate the usage and record expenses based on the actual.

The journal entry is debiting phone service expense and credit prepaid phone.

It will reverse the prepaid phone from current assets to the phone service expense on the income statement.

Example

Company ABC has top up the prepaid phone $ 200 at beginning of the month. At the end of the month, company has used the credit balance of $ 80, and the credit balance $ 120 will be carried forward to next month. Based on the phone service provider, it will be valid for six months. Please prepare journal entry for the prepaid phone.

At the beginning of the month, company paid for the prepaid phone and receive credit. They are not yet using the phone service, so it is not an expense.

The journal entry is debating prepaid phone $ 200 and credit cash $ 200.

At the end of the month, company uses the credit of $ 80, it needs to record an expense. The remaining credit $ 120 will still remain as the current assets on the balance sheet.

The journal entry is debiting phone service expense $ 80 and credit prepaid phone $ 80.