The first point that needs to be known is that Outstanding Expenses are also known as Accrued or Unpaid Expenses.
The most important aspect of this payment is that they are associated with the present year, but they still have not been paid off. Given that they are debited from profit and loss account, they become a liability for the current year, which the firm has to pay.
Example: It is taken that a firm pays $10,000 to its employees as wages per month. Since it is taken that wages of every month are paid on the first of the next month, so wages of November 2005 would be paid on December 2005, while for December 2005, wages would be paid on January 2006.
However, it is taken that December is the year end, hence, with ending of accounting period, it can be seen that only $10,000 has been paid on account of wages. So, wages for December 2005 is still considered a liability for the firm, which has to be paid back.
Position in Final Accounts:
Unlike other details, these expenses can be placed both in Trial Balance set or even a set without the Trial Balance. In such a scenario, it is taken in the form of adjustments. When outstanding salaries and wages are mentioned in Trial Balance, it will specifically be depicted only on the Liabilities side of the account.
However, when outstanding expenses are taken as adjustments, it would be depicted on two places.
- The expenses will be seen on debit It will be added to concerned expenses in the profit or loss side.
- Outstanding wages would be added to debit side of wages, on the trading account.
- Outstanding salaries would be added to salaries side of profit and loss account.
- Outstanding expenses would also be shown on liabilities
Thus, it is important to understand these details before dealing with this topic further.
Links of Previous Main Topic:-
- Adjustments additional information in preparation of final accounts
- Depreciation in the value of assets
- Appreciation in the value of assets
Links of Next Accounting Topics:-
- Prepaid expenses
- Accrued or outstanding expenses
- Unearned income
- Interest on capital
- Interest on drawings
- Interest and dividend on investment
- Interest on loan
- Bad debts not in adjustment
- Provision for bad and doubtful debt adjustment
- Further bad debts adjustment
- Provision for bad and doubtful debts given in the trial balance
- Provision for discount on debtors
- Closing stock
- Summarized presentation of adjustments
- Theoretical questions final account