What is the Journal Entry for Outstanding Expenses?


Journal Entry for Outstanding Expenses

Outstanding expenses are those expenses which are due in the current accounting period but are left unpaid. The benefits of such expenses have been consumed although due to some reason they are not paid until the end of the accounting period. Below is the journal entry for outstanding expenses;

“Oustanding expense” is a personal account as per the traditional classification of accounts.

Expense A/C Debit Debit the increase in expense
 To Outstanding Expense A/C Credit Credit the increase in liability

It involves two accounts: Outstanding Expense Account and the related Expense Account

They are an obligation for the business and therefore treated as a liability. The accounting rule applied is “credit the increase in liability” and “debit the increase in expense” (modern rules of accounting).

They are also known as expenses due but not paid and should be shown in the financial books to avoid overstatement of earnings.

 

Simplifying with an Example

Question – On December 31st 2018 Company-A recognizes rent due for 1,00,000 related to the year 2018. The period has ended and the payment has not been made.

The same is paid in cash next year on January 10th 2019. Show all financial recordings including the journal entry for outstanding expenses on these dates;

  1. December 31st 2018 (Same day)
  2. January 10th 2019 (When it is actually paid)

1. December 31st 2018 – (Overdue expense recorded as outstanding)

Rent Account 1,00,000
 To Outstanding Rent Account 1,00,000

 

2. January 10th 2019 – (Payment made towards outstanding rent)

Outstanding Rent Account 1,00,000
 To Cash Account 1,00,000

 

Treatment of Oustanding Expenses in Financial Statements

Once the journal entry for outstanding expenses has been posted they are then placed appropriately in the final accounts.

Treatment after journal entry for outstanding expenses

Related Topic – Journal Entry for Prepaid Expenses

Example – Journal Entry for Outstanding Rent

Let’s assume that in March there were 30,000 due to be paid for rent which wasn’t paid due to some reason.

At the end of the period, the company will record the situation into their books with the below journal entry.

Rent A/C 30,000
 To Outstanding Rent A/C 30,000

 

Example – Journal Entry for Outstanding Salary or Wages

Journalize the outstanding items in the books of Unreal Corp. using the below trial balance and additional information provided along with it.

  • Outstanding Salaries – 30,000
  • Outstanding Wages – 20,000

Extract from Trial Balance of Unreal Corp.

Account Dr. Cr.
Salaries 70,000
Wages 80,000

 

Journal entry for outstanding expenses in the books of Unreal Corp.

Salary Account 30,000
 To Outstanding Salary Account 30,000

(Salaries related to previous year transferred to outstanding salary account)

 

Wages Account 20,000
To Outstanding Wages Account 20,000

(Wages related to previous year transferred to outstanding wages account)

 

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