What is an Outstanding Expense in Accounting?
Outstanding Expense is those expenses which are incurred during a particular financial period and due to be paid in the future . However Outstanding expenses are recorded in books to show our liability to pay our due expense in the next financial period or year.
The recording of outstanding expenses helps to track the dues to be paid in the future.
Example of Outstanding Expenses
Suppose in Financial year 1 April 2019 to 31 Dec 2020 wages paid is Rs. 11000 but the last month wages not paid Rs 1000.
Therefore wages not paid in a particular financial year are outstanding.
To record the entry of outstanding Expenses in books of accounts we should know that
When we ADD Assets in Business we Debit our Asset
Similarly, When we ADD Liability in Business we Credit our Liability
And When we Minus or deduct Asset in business we Credit our Asset
Similar when we Minus or deduct our Liability form business we Debit our liability
ir can be more clear from the picture given below.
Now as per above example our liability to 1000 is created in the books of accounts, therefore, we have to book our liability by crediting it the journal entry for the above in the books of accounts will be
Journal Entry of Outstanding Expense
Wages A/c Dr. 1000
To O/S Wages A/c 1000
(Being wages due )
Rent paid during the year is Rs 1,10,000 rent for the year is rs 120,000.
Under such condition
When Rent is Paid
Rent A/c Dr. 1,10,000
To Cash A/c 1,10,000
(being rent paid )
Journal entry for outstanding rent will be
Rent A/c Dr 10,000
To O/S Rent A/c 10,000
(being Rent Outstanding)
Outstanding expense under Final Accounts
Now in Final Accounts Rent will be shown in the Profit and Loss A/c and O/s Rent will be shown in the liability side of balance sheet
Profit and Loss A/c
Outstanding expense under Balance Sheet
|O/S Rent A/c||10,000|
Adjustment of Outstanding expense
When outstanding rent is paid
O/s Rent A/c Dr. 10,000
To cash A/c 10000
(being O/s Rent paid)
here we reduce our liability in the next accounting year by paying our dues.
Outstanding expense in Trial Balance :
Outstanding expense are liability by nature and liability are shown in the credit side of Trial balance