Paid Expenses Journal Entry

Paid for expense is the process the company making payment to the supplier for the expense that already incurs.

In order to operate the business, company needs to have the expense to support the operation. The expense is the amount of cash that company needs to spend to acquire the service or material.

There are many types of expenses that company needs to pay. These expenses will be different depending on the nature of the business. They include rental expenses, insurance expenses, marketing, payroll, and so on. These expenses will be recorded on the income statement.

In accounting, the expense is recorded based on the occurrence rather than the payment date. The company has to record expenses on the income statement even if they have not yet made a payment to the supplier. We need to follow the accrued basics, the expenses have to include in the financial statement when the company consumes the expenses.

They need to record the accounts payable or other types of liability if the company is not yet making payment immediately. And subsequently, the company has to settle the accounts payable with the supplier. It is the time that company reveres the liability and reduces cash.

The company can also make payments on the spot. Some suppliers are not allowed to purchase on credit. It requires the company to make payment immediately. It is classified as a cash payment.

Journal Entry for Expense Paid

When the company makes the payment for the expense, they have to record the expense and cash paid to the supplier.

The journal entry is debiting expenses and crediting cash.

AccountDebitCredit
ExpenseXXX
CashXXX

The expense account will be different depending on the nature of the expense.

Example

ABC is a company that provides service to the customers. During the month, company has paid the following expense such as:

  • Utilities Expense $ 1,000
  • Rental Expense $ 2,000
  • Salary Expense $ 15,000

The company has used cash at bank to pay for all these expenses. Please prepare journal entry for payment of these expenses.

The company has to record the expenses base on their nature and reduce the cash balance.

The journal entry is debiting utilities expense $1,000, Rental Expense $2,000, Salary Expense $ 15,000 and credit cash at bank $ 18,000.

AccountDebitCredit
Utilities Expenses1,000
Rental Expense2,000
Salary Expense15,000
Cash at Bank18,000

All these expenses will be included in the income statement. It also reduces the cash at bank balance from balance sheet.