Adjustment: Outstanding Expenses Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

let us do the other adjustments in
greater details adjustment with respect
to outstanding expense what is in
outstanding
expense as per our accrual concepts all
expenses for the current diem must be
brought into the books of account
whether paid or not whether paid or not
so expense what is an outstanding
expense it is a liability it is an
expense which is not being paid it is an
ignoble 'ti an expense which is not paid
expense not paid so if we take an
example let us say the firm has the
practice of paying its employees on the
fifth of the next month so salaries are
paid on the fifth of the next month now
what happens when you come to the end of
the year on 31st March the salaries for
March let us take a figure of 40000 is
not paid because it is payable or the
company will pay the organization pays
it only in the fifth of April
however 31st March the books of account
of enclosed therefore this 40,000 must
be recognized as an expense whether or
not payment has been made whether or not
payment has been made so basically an
accounting entry is past which is to
debit service why because our reason
expense it has to be brought into the
books and the entry what are the two two
two sides of the transactions for this
one side is salary the other side is the
employees account the employees - in the
salary is two so our entry is salary
account debit - we do not write
employees whenever an expense is payable
and does not be in paid we call it
outstanding
Spence so salary account debit to
outstanding salary or whatever expense
account debit - outstanding expense
account that is the accounting treatment
increase expense create a liability
when expenses are due at the end of the
year what are the two sides there is an
expense account and there is a liability
to pay the expense at all
so entry expense debit to outstanding
expense so what is the nature of this
outstanding salary account outstanding
salary account is nothing but the
employees account so this is employees
account is a personal account this is
actually called a representative it is
called re presently div personal account
so what is the nature personal account
since April presents these accounts of
the employees to whom the distri so the
expense account debit to outstanding
expense outstanding expense is a
personal account representing the
accounts of the person to whom money is
payable now normally this is appears as
an adjustment entry this appears as an
adjustment entry after the trial balance
has been prepared the accountant might
have realized that this particular
service is outstanding and therefore we
now pass now outside the trial balance
we now pass an entry salary debit to
outstanding surgery as a result of
passing this entry the salaries account
in the profit and loss account will
increase and the outstanding salary
account is a liability and would
therefore be taken to the liability side
of the balance sheet if we were to find
an outstanding salary in the trial
balance and outstanding any expense
in the trial balance if we were to find
any outstanding expense in the trial
balance what does it imply it implies
that the accountant has passed the entry
salary account debit to outstanding
salary account so he has increased the
expense account now only outstanding
expense account would be there in the
trial balance on the credit side
representing water representing up
liability and there would liability to
liability would appear would be taken to
the liability side of the balance sheet
liability side of the balance sheet so
when there is an outstanding what is
outstanding expense expense at the end
of the year due payable but not yet paid
that is an outstanding expense what is
the nature of this account since its
represents the accounts of the person to
whom some expense is payable it is a
personal account it is known as a
representative personal account
what is the entry with respect to an
outstanding expense we increase expense
we increased liability expense account
debit tow liability what is the
liability to outstanding expense if
outstanding expense does not appear in
the trial balance if this adjustment is
to be done outside the trial balance
basically we propose an entry expense
account debit to outstanding expense
therefore expenses increased by the
amount and outstanding expenses shown
has a liability in the balance sheet
if however outstanding expense appears
in the trial balance if it already
appears in the trial balance then this
outstanding in spends is only treated as
a liability and taken to the liability
side of the balance sheet let's look at
this example Shum commenced his business
on 1st April on the 2nd of each month he
pays wages to his
workers for the previously as a 31st
March of the next year his total wages
paid amounted to 55,000 what would be
the adjusting entry with respect to
wages on 31st March so what has happen
as a 31st March he has paid a total
amount of 55,000 he would not have paid
the salary for March the salary for much
he will pay on the 2nd of April now
totally fee is paid 55,000 for 11 months
we can conclude that the wages for March
would be also 5050 5004 11 months comes
to 5,000 per month so let us say that
the wages for March 31st March is 5000
and that is outstanding has at 31st
March so what would be the entry for
this 5000 what do we have we have an
expense of wages 5000 expenses have to
be increased expenses debit and on the
other side we have a liability to pay
these expenses liability to pay these
pages and liability increase and
liability would be credit so basically
our entry should be wages debit to
outstanding wages an amount of 5000 an
amount of 5000 this would be our
accounting entry expense account debit
liability account credit