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.

Example :

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:

1. 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
2. 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

Particular	Amount	Amount
Salary	22000
Wages	11000

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

SalaryLeger A/c

Particular	Amount	Particular	Amount
To ba.l B/d	22000
To outstanding salary a/c	2000
		by P/l a/c	24000
	24000

Outstanding salary A/c

Particular	Amount	Particular	Amount
		By Salary A/c	2000
To bal C/d	2000
	2000		2000

 

Wages A/c Ledger

Particular	Amount	Particular	Amount
To bal B/d	11000
To outstanding wages a/c	1000
		By trading A/c	12000
	12000		12000

Outstanding wages a/c

Particular	Amount	Particular	Amount
		By wages A/c	1000
To bal C/d	1000
	1000		1000

Now in trading A/c for the year ending ____

Particular	Amount	Particular	Amount
By wages	12000

 

Profit and loss account for the year ending —-

Particular	Amount	Particular	Amount
By salary a/c	24000

The balance sheet as on _____

Liabilities	Amount	Assets	Amount
O/s Salary	2000
O/s wages	1000

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.