What are Outstanding Expenses in Accounting?
What are outstanding expenses? Outstanding expenses are those expenses whose services we have taken but have not paid for those services yet. There are all kinds of expenses for running every company, in which some are direct expenses and some are indirect. In all the expenses are paid by the company. But when the company produces in its current year, then there are many such expenses in it, whose services we take but we pay them on the due date. This is called an outstanding expense in the language of accounting. Meaning we have taken services from the front but we are yet to pay for that service. The outstanding expense is the current liability of the company as it is yet to be paid to the person in front. And until this outstanding expense is paid by the company, it keeps showing in the liability of the balance sheet.
Outstanding Expense Examples
Suppose an employee works in a company and his salary is 10000 rupees per month. The company has to pay him 10000 every month, if the company does not give 2 months salary to that employee due to some reason then it becomes outstanding expenses for the company. Because the company has taken the services but has not yet paid for that service. When the accountant of the company makes its entry in tally, then the outstanding expenses will have to be shown in the liability of the balance sheet until the company does not pay the salary of that employee.
But outstanding expenses are the accrued income for the employee which is his assets. Because he has earned money but he has not received it yet. If the employee of the company makes this entry in his books, then he shows this salary in the name of accrued income in current assets. When the company will pay the salary of the employee, then the liability of the company will be reduced and the asset of the employee will be reduced.
Journal Entry for Outstanding Expenses
When it is entered in tally, always 2 entries are made. Because the company has to show the expenses every month.
|Salary Expenses A/c||10000|
In the first entry, we have debited the salary which is the expenditure of the company. And credited the Outstanding Expense which is the liability of the company. When you create an account of Outstanding Expense, always put it in the current liability only.
When the employee is given salary by the company, then these entries are made.
|Outstanding Expenses A/c||10000|
|Cash / Bank||10000|
In this entry, we have debited the Outstanding Expense which is our liability, so that his account becomes equal. And paid through cash or bank, due to which salary was also paid and cash was also reduced.
Apart from this, there are many examples of outstanding expenses which are shown below.
- outstanding rent
- outstanding interest
- outstanding commission
- outstanding salary
- outstanding electricity bill
- outstanding telephone bill
- outstanding loan
Recorded of Outstanding Expenses in books
When the company does its production, it has to do many adjustments like outstanding expenses, prepaid expenses, accrued income, received in advance, all these are late payments made before time. When the accountants of the company keep their records in their books, they also get help in seeing the liabilities of the company. And since the payment is done, it will have to be done equally. Due to which the liability of the company decreases.