Outstanding Expenses and Adjustments in Financial Statements

Outstanding expenses refer to expenses that have been incurred but not yet paid for by the company. These expenses are usually recorded as liabilities in the company's books until they are settled. Adjustments, on the other hand, are necessary entries made in the financial statements to ensure that they reflect the correct financial position of the company at the end of the accounting period.

Meaning of Adjustments

Adjustments are made to the financial statements to correct errors, allocate expenses and revenues to the appropriate period, recognize unrecorded expenses or revenues, and adhere to accounting principles and standards. These adjustments are typically made at the end of the accounting period to ensure that the financial statements provide a true and fair view of the company's financial position and performance.

Adjustments for Outstanding Expenses

When outstanding expenses are given in adjustments, it means that these expenses were not recorded in the books of accounts before the preparation of the financial statements. These expenses were incurred during the accounting period but were not yet paid or recorded as liabilities. Therefore, as part of the adjustments, these outstanding expenses are recognized and recorded in the financial statements.

Recording Outstanding Expenses in Financial Statements

To record outstanding expenses in the financial statements, the following steps are typically followed:

1. Identify the outstanding expenses: The first step is to identify the expenses that are outstanding and need to be recorded in the financial statements.

2. Determine the amount: The next step is to determine the amount of each outstanding expense. This can be done by reviewing the company's records, invoices, and other relevant documents.

3. Record the expenses as liabilities: The outstanding expenses are recorded as liabilities in the financial statements. They are usually included in the relevant expense category, such as salaries payable, rent payable, or utilities payable.

4. Adjust the financial statements: The adjustments are made in the financial statements to reflect the recording of the outstanding expenses. This may involve adjusting the income statement and the balance sheet.

5. Present the adjusted financial statements: Once the adjustments have been made, the adjusted financial statements are prepared and presented to users, such as shareholders, investors, and creditors.

Conclusion

In conclusion, when outstanding expenses are given in adjustments, it means that these expenses were not initially recorded in the books of accounts. The adjustments are made to recognize and record these outstanding expenses in the financial statements to provide a true and fair view of the company's financial position and performance.