1.

Prepaid Expenses:
 The expenses which are already paid in the current year for
any next coming financial year.
 JE (amount) will be made up – to the 31st march only and
remaining amount is shown as prepaid expense.
 Grouping of prepaid expense will be current assets.
 EG: Telephone bill, Internet charges etc.
Examples:
Q. Total amount of Insurance premium expense is Rs 12,000 P.A is
payable to GIC from 1-5-2020 to 30-4-2021.
ANS: In the above example, 2 accounting period is involved.
1-5-2020 to 31-3-2021 = 11months – current period – PNL a/c
1-4-2021 to 30-4-2021 = 1 months – current period – prepaid
CY = 12,000*11/12 = 11,000 Rs expenses – PNL a/c
= 12,000*1/12 = 1,000 Rs Prepaid – b/s (current assets)
JE in Current year:
Date:
Date Particulars DR CR Grouping Voucher
Insurance 11,000 - Indirect
1-5-2020 premium expense Journal
expense a/c
Prepaid expense 1,000 - Current
a/c assets
To GIC a/c - 12,00 Sundry
0 creditors

JE for payment:
Date Particulars DR CR Grouping Voucher
1-5-2020 GIC a/c 12,000 -Sundry
creditors payment
To bank a/c - 12,00 Bank a/c
0

JE in Next year (on 1-4-2021)

Particulars DR CR Grouping Voucher
Insurance premium 1,000 - Indirect
expense a/c expense Journal
Prepaid expense a/c - 1,000 Current
assets

2. Prior period Expenses:

 Any expense which is left out in the recording process of the
any previous year and found in current year is called Prior
period expense.
 Accounting period is already gone.
 This is an expense of previous year and is to be recorded in
current year.
 Deduction of these types o expenses are not allowed in Income
tax Act.
 JE of these all expenses are always on 1st April Only.
 Grouping of the Prior period expenses will be Indirect expense.
 JE will be as under:
 When bill is found (payable)/due/accrued
Prior period expense a/c …Dr ^^^^ -
To Creditors a/c - ^^^^
 When payment is made:
Creditors a/c ….Dr ^^^^^ -
To Bank a/c - ^^^^
 Following is an example of Prior period Expenses:
Example:
Question: Bill of JPA for professional fees is found on 15-7-2021
for the financial year 17-18 of Rs 10,000 and Payment is made
on 16-7-2021.
ANS:
Date Particulars DR CR Grouping Voucher
1-4-2021 Prior period 10,000 - Indirect
expense a/c expense Journal
JPA a/c - 10,00 S.creditors
0
When payment is made:
Date Particulars DR CR Grouping Voucher
16-7-2021 JPA a/c 10,000 - S.creditors payment
Bank a/c - 10,00 Bank a/c
0

3. Provision:
 Provision is to be made for the future expense which is not
confirmed on 31st march every year.
 Services/benefits of that expense is received in current year but
bill is not generated or known.
 Amount of Bill is not known for the provision.
 This is possible when we have to close books of accounts but
amount of Provision is not known.
 This is generally seen in TELEPHONE//GAS/ELECTRICITY
EXPENSES etc
 Following is the example of Provision:
  Question:
Electricity bill period is of 2months from 1-3-2021 to 30-4-2021
and bill will be received on 5th may 2021.

ANS: “Here main question is amount of bill:”

Assumed = 6100
Services are received from 1-3-2021 to 31-3-2021 in current year
and 1-4-2021 to 30-4-2021 in Next year.
Accounting Entry will be made for 31 days in current year.
6100 * 31 / 61 = 3100RS
Date Particulars DR CR Grouping Vouch
er
31-3-2021 Electricity 310 - Indirect
expenses a/c 0 expense Journal
To Provision for - 3100 Provisions
electricity
expense a/c

When actual bill is received in next year:

Date Particulars DR CR Grouping Vouch
er
05-5-2021 Electricity 3000 - Indirect
expenses a/c expense Journal
Provision for 3100 - Provisions
electricity
expense a/c
To Torrent - 610 S.creditors
 power a/c 0

When actual bill is Paid in next year:

Date Particulars DR CR Grouping Voucher
Payment Torrent power a/c 6100 - s.creditors payment
date To Bank a/c - 610 Bank a/c
0

Insurance premium = 10,000Rs

16-7-2021 ----------- 1year ------- 15-7-2022
31-3-2022
21-22 =16-7-2021 to 31-3-2022 =days = 259 days = 10,000*259/365 = 7096
22-23 = 1-4-2022 to 15-7-2022 = days = 106 days = 10,000*106/365= 2904.