Paid for Advertisement Journal Entry
Advertising is a necessary part of doing business, but it can also be expensive. Many companies struggle to keep up with the cost of paid advertising, which is why so many businesses rely on free advertising methods such as word-of-mouth and social media. However, there are some advantages to paying for advertising.
For example, paid advertising allows businesses to target specific demographics, and it also helps to reach a wider audience. Additionally, paid advertising is more likely to result in immediate sales, which can be essential for businesses that are just starting out. In the end, whether or not a company pays for advertising is a decision that depends on its budget and its marketing goals. However, there are benefits to both free and paid advertising methods, and the best approach is often a combination of both.
Advertising is an important and necessary expense for any company that wants to remain competitive. While it is true that advertising can be a significant cost, it is also an investment that can pay off handsomely. Advertising allows companies to reach a wide audience and build brand awareness. It can also help to generate sales and drive profits.
In short, advertising is an essential part of doing business in today’s economy. While it is important to keep costs under control, businesses should not be afraid to invest in advertising. With the right strategy, advertising can be a powerful tool for driving growth and success.
Journal Entry for Advertisement Paid
Advertisement is the expense that a company spends to promote the business to generate more returns.
The company has to record the advertising expense on the income statement base on the accrued basis. The expense is recorded based on the occurrence, not the payment paid.
There are two possible scenarios for the company making payment regarding the payment for the advertisement.
- Payment after recording expense
It means that the company record advertising expense and accounts payable. And the payment is made after that.
The company record advertising expense on the income statement but not yet making payment. it will increase the accounts payable balance on the balance sheet.
The journal entry is debiting advertising expenses and credit accounts payable.
| Account | Debit | Credit |
|---|---|---|
| Advertising Expense | XXXX | |
| Accounts Payable | XXXX |
When the company made the payment, it will reverse the accounts payable from the balance sheet.
The journal entry is debiting accounts payable and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | XXXX | |
| Cash | XXXX |
- Payment and record expense
It is the transaction the company record expense and makes payment at the same time.
The journal entry is debiting advertising expenses and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Advertising Expense | XXXX | |
| Cash | XXXX |
The advertising expense will record based on the consumption of the advertising service. And the cash balance will be reduced based on the payment.
Example
Company ABC is a retail store that sells various types of products to customers. The company has hired an advertising agency to run the campaign for a month which cost $ 5,000. At the end of the month, the campaign finished, but ABC not yet making payment. Please prepare a journal entry for advertising expenses.
The company has used the advertising service at the end of the month, so it needs to record the expense on the income statement. But ABC is not yet made the payment, so it needs to record accounts payable.
The journal entry is debiting advertising expenses $ 5,000 and credit accounts payable $ 5,000.
| Account | Debit | Credit |
|---|---|---|
| Advertising Expense | 5,000 | |
| Accounts Payable | 5,000 |
The transaction will increase expenses by $ 5,000 on the income statement. It also recognizes accounts payable of $ 5,000 on the balance sheet.
On the payment date, company will reverse the accounts payable and cash paid.
The journal entry is debiting accounts payable $ 5,000 and credit cash $ 5,000.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 5,000 | |
| Cash | 5,000 |