Journal Entry of outstanding Expense
The outstanding expense is those which has been incurred and consumed during the accounting period and are due to be paid. The outstanding expense is a personal account and is shown on the liabilities side of the balance sheet. when expenses are not paid on time they are outstanding. In accounting, we have to make a journal entry for such expense as per accrual basis of accounting.
Outstanding expenses are those expenses which are due but not yet paid. It acts as a liability and considers the rules “credit the increase in liability” and “debt to show an expenses
The expense which has been incurred during the year and whose benefits have been derived during the year but not yet paid has been recorded in the books of accounts.
outstanding journal entry
When expenses are made and not paid they are outstanding
Expense A/c Dr
To outstanding expense A/c
(being expense due to be paid)
when an expense is paid after it’s been shown outstanding
Outstanding Expense A/c Dr
To cash /bank A/c
(being the outstanding expense paid)
Example Telephone bill received Rs 10000.
The journal entry needs to be pass
Telephone bill A/c Dr 10000
To outstanding Telephone Bill A/c 10000
(being telephone bill received )
Telephone bill paid Rs 10000
Here we have to debit our liability which is O/S telephone bill
Outstanding Telephone bill A/c Dr 10000
To cash A/c 10000
(being telephone bill paid)
Example salary paid to Ram for the whole year is Rs 1,10,000 whereas salary payable to Ram is 120,000. for the whole year. It means salary which is not paid to Ram is Rs 10,000 which is outstanding therefore to close the accounts of salary we have to pass the adjustment journal entry.
In such case
when we paid the salary
The following entry was passed
Salary A/c Dr 110,000
To cash A/c
(being salary paid)
Now for adjustment entry, the following entry will be passed.
Salary A/c Dr 10,000
To Outstanding Salary A/c 10,000
(being salaried outstanding adjusted)
In the below transaction commission is not paid to salesman Rs 10,000 now we have to record that also
Commission payable to salesman Rs 10,000,
Commission a/c Dr 10,000
Commission payable A/c 10,000
(being commission payable)
Here Outstanding salary is a Current liability because it is a liability for the company to pay remaining dues.
Interest on loan for the year is Rs 1800 not paid.
This interest on the loan is an expense for an organization and therefore as per the accrual basis of accounting, it needs to be written. The journal entry for the same will be
interest on loan A/c
Outstanding interest on loan A/c
(being interest on loan due)
Advantages of Passing entry of Outstanding Expense:
- As we know we follow accrual accounting system and therefore it is very necessary to pass journal entry of outstanding salary which will be shown on the debit side of profit and loss account and liability side of the balance sheet
- After passing adjustment entry of O/s expense, we know the exact financial position of a firm and we will know our exact liabilities.
Treatment of outstanding Expense in final accounts
- The outstanding expense is shown are added in the expense on the debit side of Trading and profit and loss accounts.
- Outstanding expense are shown on the liability side of the balance sheet
Salary Rs 2000 is outstanding
Wages Rs 1000 is outstanding
Now in the above case
At the end of the accounting year following entry need to pass
Salary A/c Dr 2000
To outstanding salary A/c 2000
(being salaried outstanding adjusted )
Wages A/c Dr 1000
To outstanding Wages A/c 1000
(being outstanding wages adjusted i)
Now have to prepare ledger of
|To ba.l B/d||22000|
|To outstanding salary a/c||2000|
|by P/l a/c||24000|
Outstanding salary A/c
|By Salary A/c||2000|
|To bal C/d||2000|
Wages A/c Ledger
|To bal B/d||11000|
|To outstanding wages a/c||1000|
|By trading A/c||12000|
Outstanding wages a/c
|By wages A/c||1000|
|To bal C/d||1000|
Now in trading A/c for the year ending ____
Profit and loss account for the year ending —-
|By salary a/c||24000|
The balance sheet as on _____
Point to be noted :
If outstanding expense is given in Trail balance then outstanding expense will only be shown inside liability side of the balance sheet and it will not be shown on the debit side of Profit and Loss A/c.