What are the entries to record interest expense incurred on borrowings from bank ? Upon occurrence of interest expense:
Dr. Interest Expense (P/L)
Cr. Interest Payable (B/S)
Upon repayment of interest payable to bank:
Dr. Interest Payable (B/S)
Cr. Cash (B/S)
Showing posts with label Small Business Accounting. Show all posts
Showing posts with label Small Business Accounting. Show all posts
Small Business Accounting - Prepayment
In practice, small business made one lump sum prepayment or downpayment for purchases or services accross a certain period. For instance, the business may entered into insurance contract to insure its asset for a period of 12 months.
From accounting perspective, the amount prepaid should be expensed over the period of servie covered. To illustrate, the 12-month insurance premium paid should be expensed off over a period of 12 months. What would be the accounting treatment then?
Assuming Company XYZ entered into insurance contract to insure its inventory. Total insurance premium paid is US$12,000.
Upon payment of insurance, the Company passed the following entries:
Dr. Prepayment (B/S- Asset)12,000
Cr. Cash 12,000
(Being prepayment to insurer for insurance contract)
At month end, the following entry will be passed to recognise the insurance expense
Dr. Insurance expense (P/L)1,000 (12,000/ 12)
Cr. Prepayment 1,000
(Being utilisation of monthly insurance expense)
At the end of 12 months, the prepayment accounted will be fully utilised.
From accounting perspective, the amount prepaid should be expensed over the period of servie covered. To illustrate, the 12-month insurance premium paid should be expensed off over a period of 12 months. What would be the accounting treatment then?
Assuming Company XYZ entered into insurance contract to insure its inventory. Total insurance premium paid is US$12,000.
Upon payment of insurance, the Company passed the following entries:
Dr. Prepayment (B/S- Asset)12,000
Cr. Cash 12,000
(Being prepayment to insurer for insurance contract)
At month end, the following entry will be passed to recognise the insurance expense
Dr. Insurance expense (P/L)1,000 (12,000/ 12)
Cr. Prepayment 1,000
(Being utilisation of monthly insurance expense)
At the end of 12 months, the prepayment accounted will be fully utilised.
Small business accounting- Cash
Generally, the small business comprises:
- Cash on Hand
- Cash in Bank
Generally, the cash on hand amounts are not material, while significant amount of the businesses’ cash are kept in bank. What will be the accounting entries for cash receipt and cash disbursement (i.e. payment).
Upon receiving of cash from debtors:
Dr. Cash in Bank
Cr. Trade Debtors
Upon disbursement of cash (i.e. outflow of cash) for expenses
Dr. Trade Creditors/ Expenses
Cr. Cash in Bank
For bank charges on the bank account deducted from bank account directly:
Dr. Bank charges
Cr. Cash in Bank
It’s important to note that: a online bank account enable the small business to track the transaction on a real time basis. Conventionally, small business is required to check the cash inflow and outflow while they have received the monthly bank statement from the bank. With online banking account, the small business is allowed to view the transactions on a timely basis.
- Cash on Hand
- Cash in Bank
Generally, the cash on hand amounts are not material, while significant amount of the businesses’ cash are kept in bank. What will be the accounting entries for cash receipt and cash disbursement (i.e. payment).
Upon receiving of cash from debtors:
Dr. Cash in Bank
Cr. Trade Debtors
Upon disbursement of cash (i.e. outflow of cash) for expenses
Dr. Trade Creditors/ Expenses
Cr. Cash in Bank
For bank charges on the bank account deducted from bank account directly:
Dr. Bank charges
Cr. Cash in Bank
It’s important to note that: a online bank account enable the small business to track the transaction on a real time basis. Conventionally, small business is required to check the cash inflow and outflow while they have received the monthly bank statement from the bank. With online banking account, the small business is allowed to view the transactions on a timely basis.
Small Business Accounting
Small business accouting, in general, are non-complex and straight forward. The fundamental is that the owner of the small business must develop certain level of undertanding of accounting before they could really appreciate the value and necessities of accounting.
Our blog has specially dedicated a separate section to educate our blog readers on basic accounting entries, specifically suits for small business.
Prior to introduction on accounting entries, we would like to highlight to business owner that it's important, convenient and cost-effective to use accounting software to perform daily book-keeping. There are already a few accounting softwares in the market, e.g. Microsoft Office Accounting Express, SAP small business accounting software.
An accounting software is considered imperative in today business environment.It reduces the time spent on book-keeping, prevent 'un-balance' entries, and provide the business owner an effective insight of the Company's financial position and results on a timely basis.
Our blog has specially dedicated a separate section to educate our blog readers on basic accounting entries, specifically suits for small business.
Prior to introduction on accounting entries, we would like to highlight to business owner that it's important, convenient and cost-effective to use accounting software to perform daily book-keeping. There are already a few accounting softwares in the market, e.g. Microsoft Office Accounting Express, SAP small business accounting software.
An accounting software is considered imperative in today business environment.It reduces the time spent on book-keeping, prevent 'un-balance' entries, and provide the business owner an effective insight of the Company's financial position and results on a timely basis.
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