JOURNAL ENTRY FOR INDIRECT EXPENSE( SERVICE CHARGES,MAINTENANCE, AND OTHERS)

Journal entry for Service related Expense (excluding TDS)

Expense of the organisation include both direct and indirect .They may be related to services received by company in so many ways like Professional services, Rent, Contract services etc. The service receiver is liable to deduct on services at the time of booking or payment as per Expense tax act. Let us see some illustration

Journal entry for Rent expense

Rent paid to Parkas co. Rs.12000/-

                   Rent A/C      Dr                          12000

                         To Parkas Co. A/C                                12000

(Narration: - Being Rent paid to parkas co. entered vide bill no. xx )

The rules for passing Journal entry

Debit

Rent is expense for business and the same shown on profit on loss account at the year end. So, as per nominal account rule(Rent paid)

 “Debit all Expense or loss"(Expense Account)

Credit

Due to credit purchase we are liable to him. And he is selling us the goods on credit.The creditors balance will increase.

As per personal account rule (Parkas Co.) "Credit the giver account"(Current Liability)

Journal entry for Rent Expense (Including TDS)

Rent paid to Parkas co. Rs.12000/-

                     Rent  A/C     Dr                         12000

                           To Parkas Co. A/C                             10800

                           To TDS payable A/C                            1200

(Narration: - Being Rent paid to parkas co. entered vide bill no. xx )

The rules for passing Journal entry

Debit

Rent is expense for business and the same shown on profit on loss account at the year end. So, as per nominal account rule(Rent paid) “Debit all Expense or loss"(Expense Account)

Credit

Due to credit purchase we are liable to him. And he is selling us the goods on credit.The creditors balance will increase.

As per personal account rule (Parkas Co.) "Credit the giver account"(Current Liability)

Credit

TDS payable will be treated as representative person. When duties are payable will be treated as liability and shown as current liability on liabilities side of balance sheet. So, As per personal account rule (TDS payable) "credit the giver account"(Current liability)

Here in above case TDS is calculated on Rent .TDS @ 10% on 12000 =1200/-

Journal entry for Service Expense (Including Service tax)

As service tax is applicable on services, the service receiver is eligible to claim the service tax input as CENVAT credit and use the same credit to adjust against on excise duty payable(Not against the service tax payable)

Journal entry for Professional Charges

Professional charges payable of Rs.22000 (Including service tax of Rs.2000/-)to ABC Associates

                     

         Professional charges A/C    Dr      20000

         Service Tax Received A/C   Dr        2000

                   To ABC Associates                                22000

(Narration: - Being Professional charges booked against bill no.)

The rules for passing Journal entry

Debit

Professional charges is expense for business and the same shown on profit on loss account at the year end. So, as per nominal account rule(Professional charges) "debit all expense or loss"(Expense)

Debit

As we are paying duties on professional charges are eligible for Input credit and treated as asset.(I.e. the taxes paid to creditors are not expense and it has to be treated as asset and can be set off against the duties payable, But before treating it as asset the input eligibility should be checked. Normally the purchase related to manufacture Except Factory building items Ex-Cement& steel can be availed as Input credit)Ex: - EXCISE DUTY, VAT & SERVICE TAX.

Credit

Due to credit purchase we are liable to him. And he is selling us the goods on credit.The creditors balance will increase.

As per personal account rule (ABC Associates) "Credit the giver account"(Current Liability)

Journal entry for Professional Charges(including TDS)

Professional charges payable of Rs.22000 (Including service tax of Rs.2000/-)to ABC Associates

                     Professional charges A/C  Dr        20000

                     Service Tax Received A/C Dr          2000

                                   To ABC Associates                                20000

                                   To TDS payable A/C                               2000

(Narration: - Being Professional charges booked against bill no.)

The rules for passing Journal entry

Debit

Professional charges is expense for business and the same shown on profit on loss account at the year end. So, as per nominal account rule(Professional charges) "debit all expense or loss"(Expense)

Debit

As we are paying duties on professional charges are eligible for Input credit and treated as asset.(I.e. the taxes paid to creditors are not expense and it has to be treated as asset and can be set off against the duties payable, But before treating it as asset the input eligibility should be checked. Normally the purchase related to manufacture Except Factory building items Ex-Cement& steel can be availed as Input credit)Ex: - EXCISE DUTY, VAT & SERVICE TAX.

Credit

Due to credit purchase we are liable to him. And he is selling us the goods on credit.The creditors balance will increase.

As per personal account rule (ABC Associates) "Credit the giver account"(Current Liability)

Credit

TDS payable will be treated as representative person. When duties are payable will be treated as liability and shown as current liability on liabilities side of balance sheet. So, As per personal account rule (TDS payable) "credit the giver account"(Current liability)

In above case TDS is calculated on Professional charges excluding service tax .TDS @ 10% on 20000 =2000/-