He can’t record the entire expense when it is paid because some of it was already recorded. If the bookkeeper doesn’t reverse this accrual enter, he must remember the amount of expense that was previously recorded in the prior year’s adjusting entry and only account for the new portion of the expenses incurred. The reversing entry erases the prior year’s accrual and the bookkeeper doesn’t have to worry about it. For example, if an accrued expense was recorded in the previous year, the bookkeeper or accountant can reverse this entry and account for the expense in the new year when it is paid. Reversing entries are usually made to simplify bookkeeping in the new year. These entries are optional depending on whether or not there are adjusting journal entries that need to be reversed. Reversing entries are made because previous year accruals and prepayments will be paid off or used during the new year and no longer need to be recorded as liabilities and assets. This is the last step in the accounting cycle. The journal entry is debiting traveling expenses $ 5,000 and credit cash $ 5,000.Reversing entries, or reversing journal entries, are journal entries made at the beginning of an accounting period to reverse or cancel out adjusting journal entries made at the end of the previous accounting period. The company has to record the traveling expense in the financial statement. It is not possible to make proper allocation of the expense to each client, so the company decides to record it in the operating expense. As a result, The company has spent $ 5,000 on travel expenses. The company needs to send the employee to inspect the client’s site in various locations. ExampleĪBC is a consulting company that provides various services to clients in rural areas. Most of the travel expenses are paid by cash, so it will impact the company’s cash balance. Some companies may record it as the cost of goods sold if they can allocate it to a specific project such as a service performed for the client. The travel expense will be recorded as the expense on the income statement. Account Debit Credit Travel Expense XXXX Cash XXXX The journal entry is debiting travel expenses and credit cash. The company needs to record the expense when the expense incurs rather than paid. Traveling expenses are the expense that the company pays for the employee’s travel to perform service for clients. It depends on the company policy and the intention behind it. Only a few customers whose location requires the traveling expense. It can happen to the service company that provides different services to many customers. However, some company allocates it as the cost of goods sold (cost of service). It is part of the company’s operation that company spend to send the employees to join the meeting, training, and other business operation. This expense is normally treated as the operating expense report on the income statement. By taking a few simple steps, you can help to ensure that your company’s travel expenses are reasonable and manageable. If your company spends a lot on travel expenses, it may be worth hiring a full-time travel manager to handle all of the details and help keep costs under control. You can also encourage employees to make use of less expensive options whenever possible, such as flying economy class or staying in less expensive hotels. There are a few ways to help control these costs, such as negotiating discounts with airlines or hotel chains or consolidating travel bookings through a single travel agency. When done correctly, investing in employee travel can be a wise decision for both the company and the employees. Spending on employee travel can also be a tax-deductible business expense. In addition, it allows employees to build relationships with clients and colleagues and learn new skills. This is because it is often more cost-effective and efficient to have employees travel to client meetings, training sessions, and conferences rather than hiring outside consultants. Many companies choose to spend their travel expenses on their employees. Traveling expense is the expense that company pays for conducting the business operation far away from the normal business location.
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