What is Mixed Account and Business Operation

An account with a balance that is partly a balance sheet amount and partly a profit and loss account amount is called mixed account. Again using supplies as an example, the balance reported on the trial balance is composed of two elements, the supplies on hand at the end of the period, which is an unexpired cost or asset, and the supplies used during the period, which is an expired cost or expense, before the profit and loss account and balance sheet are prepared, it is necessary to determine the amount allocable to the asset and the amount allocable to the expense.

The amount of the asset can be determined by counting the quantity of each of the various commodities, multiplying each quantity by the unit cost of that particular commodity and totaling the rupee amounts thus obtained. The resulting figure represents the amount of the supplies inventory (asset). The cost of the supplies consumed (expense) is then determined by deducting the amount of the inventory from the balance of the supplies account on the basis of this information, the cost of the supplies used can be transferred from the asset account to the supplies expense account.

An alternative to initially recording the cost of supplies and other prepaid expenses as assets is to record them as expense. When this procedure is adopted, supplies expenses and other expense accounts would be mixed accounts at the end of the period, and it would be necessary to transfer the unexpired cost relating to future accounting periods from the expense accounts to appropriate asset accounts. In the meantime all expenses that include prepayments of expense for future periods will be initially recorded as assets. It is important to note that, before preparing the profit and loss account and balance sheet, it is always necessary to determine the portion of mixed account allocable to asset and the portion allocable to expenses, regardless of the recording procedure employed.

Prepayment of expenses applicable solely to a particular accounting period are sometime made at the beginning of the period to which they apply. When this is the case, the expenditure is ordinarily recorded as an expense rather than as an asset. The expense account debited will be a mixed account during the accounting period, but it will be wholly expense at the end of the period. For example, if rent for March is paid on 1st March, it is almost entirely as asset at the time of payment. The asset expires gradually from day to day, and at the end of the month the entire amount has become an expense. Therefore, if the expenditure is initially recorded as a debit to rent expense, no additional attention need be given to the matter at the close of the period.