Journal Entry for Outstanding Expenses
Outstanding expenses are those expenses which are due in the current accounting period but not paid. 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.
Accounting entry for an outstanding expense,
|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 2019 Company-A recognizes rent due for 1,00,000 related to the same year. The period has ended and the payment has not been made.
The same is paid in cash next year on January 10th 2020. Show all financial recordings including the journal entry for outstanding expenses on these dates;
- December 31st 2019 (Same day)
- January 10th 2020 (When it is actually paid)
1. December 31st 2019 – (Overdue expense recorded as outstanding)
|To Outstanding Rent Account||1,00,000|
2. January 10th 2020 – (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.
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.
|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 the trial balance and additional information provided along with it.
- Outstanding Salaries – 30,000
- Outstanding Wages – 20,000
Extract from Trial Balance of Unreal Corp.
Journal entry for outstanding expenses in the books of Unreal Corp.
|To Outstanding Salary Account||30,000|
(Salaries related to previous year transferred to outstanding salary account)
|To Outstanding Wages Account||20,000|
(Wages related to previous year transferred to outstanding wages account)
Short Quiz for Self-Evaluation
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