It is the costs of running a business and do you know how to record it?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at how to record an expense.
An expense can be defined as the monetary value or cost incurred for a business to supply
the goods or services.
If expenses are more than revenue then a loss is made and if expenses are less than revenue
then a profit is made.
All the expenses of a business can be recorded into one large account. While this would make
it simpler and faster to calculate the profit, it is more practical and useful to provide
T accounts for each type of expense.
Types of expense accounts include:
Wages Rent
General expenses Motor expenses
Bank interest and Insurance
Businesses have the choice to name each expense account as they want.
Let’s now have a look at how an expense is treated in the accounts.
The most important thing to remember is that an expense or rate will always be on the debit
side of a T account.
Before we look at how to record an expense. You should first know what a T account is
and how to open a T account. You can learn about these two things in the links above.
Expenses for the business motor vehicles of £100 were paid by cheque.
The money paid can be identified as motor expenses and therefore we will name the account
Motor Expenses. This is identified as an expense and so we would enter the details on the debit
side of the T account.
Let’s assume that the transaction took place on the 11th May 2016 which can be shown as
11/5/16. Then we will note it as bank in the detail column because that is the name of
the other account that has been affected. And finally 100 is entered in the £ column.
The wages for the employees of £400 have been paid in cash.
The money paid can be identified as wages and therefore we will name the account Wages.
This is also identified as an expense and so we would enter the details on the debit
side of the T account.
Let’s assume that the transaction took place on the 20th May 2016 which can be shown as
20/5/16. Then we will note it as cash in the detail column because that is the name of
the other account that has been affected during the transaction. And finally 400 is entered
in the £ column.
Then monthly interest of £15 for the bank loan was paid.
The loan interest can be identified as bank loan interest and therefore we will name the
account Bank Loan Interest. This is also identified as an expense and so we would enter the details
on the debit side of the T account.
Let’s assume that the transaction took place on the 22nd May 2016 which can be shown as
22/5/16. Then we will note it as bank in the detail column because that is the name of
the other account that has been affected during the transaction. And finally 15 is entered
in the £ column.
So that was demonstrating how to record an expense. If you enjoyed it, press the like
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