Journal Entry for Recognition of Expenses

Journal Entry for Recognition of Expenses

Journal entry for recognition of expenses is subject to fulfillment of some conditions. The following conditions needs to be fulfilled before expenses are recognized in books of accounts. Financial item satisfy Expense definition.

·         Definition of expense.

·         Decrease of economic benefit has happened.

·         Expense can be measure reliably.

 Definition of Expenses

If you are going to record a financial element under expense, then you must be 100% sure that this element meets the definition criteria of an expense. In other words you must be 100% sure that a financial event qualify to be recognized as expense.

Expense is basically a decrease in value of asset against a benefit received by business.  and this decrease in asset would reduce the equity. Benefits may be short term like salary or long term like depreciation charged over a period of time.

Decrease in Economic Benefit has happened.

Expenses shall be recorded when the decrease of economic benefit has arisen. Thus future expenses are recorded as asset.

                                                                       

Reliable Measurement of Expenses

Expenses are not recorded in the books of account unless and until you reliably measure the expense. For example you have made some repair, but you are not sure how much repair firm would charge you against the services, then you cannot record this transaction.

Recognition of Expenses

Once the aforementioned conditions are met, then expenses may be recorded in the books of account using the debit & credit Rule i.e. an increase in expense is debit and decrease in expense is credit. Journal entry rule for expenses have been explained in more detail in my other article.

For example a salary has been paid against the services received shall be recorded as expense as under

Date	Particular	Ledger Folio	Dr.	Cr.
01-05-2016	Salary		120,000
01-05-2016	Cash			120,000