Outstanding Expenses
Outstanding expenses refer to those expenses which relate to the current accounting period but have not been paid so far. These expenses lead to an increase in liability for a firm. Some of the types of these expenses are Outstanding wages, Outstanding salaries, Outstanding Interest on loan, etc. All these expenses have to be taken into account for computing the current Profit/Loss of a firm. These are debited to Profit and Loss A/c under their respective accounts.
Adjustment:
A. If Outstanding Expense is given outside the trial balance: In such case, two entries will be passed:
- Will be added in the concerned item (expense) at the Dr. side of Trading A/c or Profit & Loss A/c.
- Will be shown on the liabilities side of the balance sheet.
B. If Outstanding Expense is given inside the trial balance: It will be only shown on the liabilities side of the Balance Sheet. (Because it is a Representative Personal A/c, which has a Cr. balance)
Financial Statement with Adjustment with Examples-I
Through adjustments in the financial statement, we consider all the accounting items which are relevant to the current financial year, but not recorded in the books due to any reason or wrongly recorded. This helps us in getting the actual profit or loss for the year and the accurate financial position of the company. Five basic adjustments, like Closing Stock, Outstanding Expenses, Prepaid Expenses, Accrued Income, and Unearned Income are discussed below.
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