Journal Entries of Paying Expenses on the behalf of Others

If you are accountant in any company or any other organisation, you will surely face this problem. You or your company pays the expenses but it is on the behalf of other person. You are just representative for other. For example, you can pay the expenses of your boss, your friend employee, your customer or your supplier. What will its journal entry?


Some will do the mistake by making it expense of business and debit the expense in journal entry which is totally wrong. Sometime, there may be lack of money in the pocket of your boss. He will say to you to pay his electricity bill or any other bill. It is the personal expense of that party not your business expense. So, expense account never debit.

So, how can you pass the journal entries, we will learn with two following examples.

Example of Transaction  No. 1

Generally we used to pay various taxes on behalf of our client through online and after that collect the cheque of that same amount so in this regard please advise the best journal entry for these type of payment of expenses. Ex Suppose we paid Rs. 100 of Mr. Ram as Income Tax Payment and subsequently takes a cheque of Rs. 100 from Mr. Ram so what type of entry has to passed. Please guide

Example of Transaction No. 2

Suppose I am an Accountant in a firm and our firm is dealing in Cars, (Sale Purchase) our creditor has told to me, you are publish my add in news paper for advertising the cars, i have done this job, then we want to received the funds from the Creditors, so what will be the entry pass, for both the entries.

Journal entries will be same of both type of examples

 In both examples, we are seeing that accountant is paying on the behalf of customer or creditor. It means, both expenses is not the business of accountant. So, income tax or advertising  expense is not the  business expense. So, we will never debit these expense account. We will pass the journal entry with following way

1. When you have paid Income Tax or advertisement on the behalf of your Client or creditor

Name of Your Client Creditor ( In this transaction, he is actually your borrower) Account Debit

Cash / Bank Account Credit

Logic : Now amount which you have to take from your client or creditor, will be your asset or increase in your total asset. Every increase in your business asset must be debited. Cash/ Bank is decrease of your asset, so we have credited it. If your client or creditor do not pay you this payment. You can help court to get this amount because this entry is the proof which you can show.


2. When You will get your payment back from your Client or creditor


Cash/ Bank account Debit

Name of Your Client or  Creditor ( In this transaction, he is actually your borrower) Account Credit

Logic : Because your cash or bank asset has increased, so it will debit. Other side your asset of investment in loan ( you have also right to take interest on this amount)  has decrease, so it will be credited.

Single Solution of All Your Journal Entries Problems

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