Advertising Expense Journal Entry
Advertising expense is the amount that the company spends to promote a product, service, and brand name via different marketing tools.
When it comes to advertising, many businesses focus on the cost rather than the quality of their campaigns. While it’s important to keep your expenses in check, sacrificing quality can actually end up costing you more in the long run. Luckily, there are ways to create high-quality marketing campaigns without breaking the bank.
One way to cut down on advertising costs is to target your audience more effectively. By narrowing your focus, you can avoid wasting money on ads that don’t reach your target market. You can also save money by creating high-quality content that will engage and convert your audience. Finally, using cost-effective advertising methods can help you get the most bang for your buck.
Advertising expenses will be recorded on the company income statement and it depends on the occurrence rather than cash paid. It usually happens when the supplier completes the work and issues an invoice to the company. If the advertising contract is longer than one accounting period, the company needs to calculate the proper portion of the expense that need to include in each period.
Journal Entry for Advertising Expense
When the supplier completes the advertising service and issues an invoice to us, we need to record the advertising expense and the accounts payable. The expense is recorded when the supplier performs the service. At that time, the company has the obligation to pay the supplier, so they should record accounts payable as well.
The journal entry is debiting advertising expenses and credit accounts payable.
The transaction will increase the expense on the company income statement. It also increases the accounts payable on the balance sheet in the liability section.
On the due date, the company has to settle the accounts payable. They will reduce cash balance as it is used to settle with suppliers. The accounts payable is removed from balance sheet as well.
The journal entry is debiting accounts payable and credit cash.
Company ABC hires an agency to run a marketing campaign during a local festival. The contract cost $ 50,000 which expect to run for a week. After the event finish, supplier bill invoice to the company.
One week later, the company issued a cheque to settle the invoice with supplier. Please prepare journal for advertising expenses.
When the company receives service and invoice from the supplier, they must record the expense and accounts payable.
The journal entry is debiting advertising expense $ 50,000 and credit accounts payable $ 50,000.
It will increase the advertising expense $ 50,000 on income statement. The accounts payable $ 50,000 will be present on the balance sheet.
When the company makes payments to the supplier, they have to reverse the accounts payable and cash balance.
The journal entry is debiting accounts payable $ 50,000 and credit cash at bank $ 50,000.