What is Outstanding Expense in Accounting ?

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What is an Outstanding Expense in Accounting?

Outstanding Expense is those expenses that 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

Example 1.

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.

asset and liabilities

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 )

Example 2

Rent

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)


 

Some example of outstanding expenses

Question 1.

A loan is taken from Bank Rs 100000 on 1 Dec 2019. interest payable 12% per annual. FY close on 31 March 2020.

Case 1

Interest paid Rs 2000.

Answer

Year loan 100000 X 12% = 12000

4 month interest 12000/12= 1000 int.=1000X4 = 4000

Loan taken from Bank Rs 100000 on 1 Dec 2019. interest payable 12% per annual. FY close on 31 march 2020.

Case 1

Interest paid Rs 2000.

here interest payable is an outstanding expense

Question 2.

A loan was taken from Bank Rs 100000 on 1 Dec 2019. interest payable 12% per annual. FY close on 31 march 2020.

Case 2

Interest paid Rs 8000.

Int. on Loan Dr.        4000

Prepaid Interest A/c Dr.  4000 its (prepaid expense)

                  To Bank                A/c 2000

Question 3.

A loan is taken from Bank Rs 100000 on 1 Dec 2019. interest payable 12% per annual. FY close on 31 March 2020.

Case 3

No interest paid

Int. on Loan Dr.        4000

To Int. on loan payable  A/c      4000 (outstanding expense)

 

Outstanding expense in case of the bill received not paid.

Suppose we received a bill of mobile Phone  Rs 10,000 on 1 December 2020 and paid on 15 December 2020.

When a bill is received on 1 Dec. we have to note it down in books of accounts.

Mobile Phone exp. Dr.   10,000

   To Mobile phone bill payable     A/c                                        10,000

(being mobile phone bill received and payable )

When a bill is paid on 15 December.

Mobile phone bill payable A/c 10,000

   To Cash A/c     10,000

(being bill paid)

 

 

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

shown below

Profit and Loss A/c

ParticularAmountParticularAmount
Rent A/c1,10,000  
Outstanding expense under Balance Sheet
LiabilityAmountAssetAmount
O/S Rent A/c10,000  

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

Dr.                                                                                                                                            Cr.

ParticularAmountParticularAmount
  Outstanding Rent10,000

Question

Example of salary with outstanding journal entry

January 10 2020.  Paid salary for the month Rs 5000 actual salary Rs 10,000.

Here we are only paying half of the salary but not paying full salary therefore half the salary is outstanding.

Salary A/c Dr Rs. 10,000

   To cash A/c            5000

   To outstanding salary / salary payable A/c  5000

(being salary paid and due half of salary)

February Paid salary with adjustment of last month salary due.

Here we have to pay salary of February  which is Rs 10,000 and outstanding salary which is Rs 5,000

Journal entry of the above entry will be

Salary A/c    Dr.                   10,000

Outstanding salary A/c Dr  10,000

  To cash A/c                                  15,000

(being salary paid and o/s adjusted )

Welcome to your quiz 1

Outstanding expenses are _____ in the current accounting period but are left unpaid.
Outstanding expense are
Rent prepaid as at the commencement of the year was Rs.8,000. Having agreed to pay rent at Rs. 4,000 per month, the business was able to pay during the year only Rs. 28,000. What is the position at the year-end?
Staff salary remaining unpaid as at the year-end should be accounted for as

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