Question

Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchase $80,000 of open airline tickets in advance that can be used for a variety of destinations because they need the flexibility and savings provided by such tickets. What entry should Friends International make to record this purchase?

Answer 1

1 January, 2014. (Debit) Prepaid Expense $80,000

(Credit) Cash $80,0000

Explanation: Purchased airline tickets in advance.

Step-by-step explanation:

Prepaid expense: When the company buys an asset which would be used in future it is recorded in the prepaid expense general entry and when the asset would be finally consumed it would be recorded in the expense account.

For Example: Prepaid Expense (Debit), Cash (Credit) -after consuming- Expense (Debit), Prepaid Expense (Credit)

• In this case, The friends International bought tickets in advance but are intending to use these tickets in the future.
• The possible reason they have bought these tickets so early can be that buying the tickets in advance is maybe cheaper than buying at the time.