The category of expenses depends on the nature of the entity’s business.įor Entities exclusively into the Marketing/Product Sales (not manufacturing), the Travel expense of a Salesman is a direct expense. (Being the travel charges incurred for ABC Manufacturing deal)įrequently Asked Questions 1) Are the Travelling expenses of a Salesman forms part of Direct or Indirect Expenses? Journal Entry for recording the Travelling expenses: So, the Credit, in this case, is the Cash A/c. These expenditures are paid immediately, and there might not be any bills or invoices. There might be instances where there is no requirement to recognize the liability like Meals, tips, parking fees etc. Here Liability Account is named Cab Charges Payable, Travel Charges Payable etc., based on the nature of the liability. Let’s see what’s the corresponding Credit.Ĭredit is for the Liability Account. As this GL is an expenditure Account, the appropriate accounting treatment is to debit this GL Account in the Journal Entry. Travelling expenses is a Nominal Account that flows into the Profit and Loss A/c. Parking Fees, Toll Charges, Cab Waiting Charges and Luggage Porter Charges What’s the Journal Entry?.Tips or Surcharge paid for using any of the above facilities as part of travel.Expenses incurred for the Meals, Communication charges and WIFI Charges.Air Fare and insurance charges, if any relating to the business travel.Directors Cost of travel to other City to attend some business meeting or Client meeting.Let’s see a couple of instances relating to travelling expenses Therefore, the purpose shall not be of personal nature.Įstimated reading time: 5 minutes Travelling expenses Examples: The purpose of travel shall be connecting to the entity’s business operations. Now, the below data is the journal entry for the interest expense.The name itself indicates that this travelling expense relates to expenses incurred for travel by entity employees or directors. Therefore, the accounting will again be reversed in the following month on the day of payment of the interest, i.e. However, the interest will be paid in the following month, which means the next accounting period. Calculate the interest to be paid and record the journal entry for the transaction, given that PQR Ltd reports the year ending as of March 31 of every year.Īccording to the matching concept, PQR Ltd will record the interest expense of $2,500 (= 0.5% * $500,000) in the financial statements for the year ending on 31 st March 2019. The effective rate of interest being charged is 0.5% per month. Let us take the example of PQR Ltd, which has to pay interest on the outstanding loan of $500,000 for the month of March 2019 on 4 th April 2019. Now, the journal entry for the depreciation expense for the financial years 2017, 2018, and 2019 is shown below: Therefore, to calculate the yearly depreciation charge, we will use the straight-line method: The company will follow the straight-line method of depreciation.The company will dispose of the equipment at the end of 3 years.The equipment has an estimated useful life of 3 years.On April 01, 2016, ABC Ltd purchased production equipment worth $60,000. ![]() You have to calculate the depreciation expense charged during the life of the equipment and capture the journal entry in the respective financial statements. Take another example of ABC Ltd, which produces ice cream and recently bought production equipment. Now, the recording of the journal entry is as follows, Journal Entry for the Depreciation Expense: Credit Accumulated Depreciation Account.Here, let’s consider the following golden rule of accounting. Therefore, the calculation for yearly depreciation expenses is as follows:ĭepreciation Expense = (Purchase Value – Salvage value) / Useful Life March 31, 2019.įor ease of calculation, the depreciation expense has been assumed to be charged on the straight-line method. You have to show the journal entry for the depreciation expense recorded at the end of the financial year, i.e. As per the equipment’s user manual, its useful life is 15 years, and beyond that, it is worthless. Let us take the example of SAF Ltd, which purchased the equipment at the beginning of the financial year 2019, i.e.
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