Monday, June 8, 2020

Journal Entry for Outstanding Expenses - With Example

Posted On

June 08, 2020

Journal Entry

We will understand in this article about Journal entry of outstanding expenses along with some examples. But before an understanding about journal entry of outstanding expenses/rent/salary, we have to understand what is Journal entry.

Journal Entry is a source step to be undertaken for making financial statements of any organization. With the help of source documents first, we need to enter a journal entry. In journal entry one account having two effects always, one is debited and the other is credited. Because of two effects, our final account(Balance Sheet) getting matched with both sided(Asset and Liability).

Outstanding Expenses

Outstanding expenses means expenses which are not paid but recorded in the accounts. We are having this situation many times that we are paying salary or rent in the next month but have to record in the month for which payment made.

Example of some outstanding expenses are:

Outstanding salary
Outstanding Rent
Outstanding wages
Outstanding subscription etc.

Outstanding Expenses can be recorded under the current liability of the Balance sheet. Outstanding Expenses are categorized under Personal Account.

Personal Account can be categorized in the following terms:

Natural Person: It means Ram, Shyam, Sita, Mahi, Pankaj, Rahul, etc.
Artificial Person: It means Ram Pvt. Ltd., Shyam Public Limited, MMTC Ltd, etc
Representative Person: It means representative of any person or persons e.g Outstanding rent, Outstanding Expenses, etc.

Outstanding expenses are basically related to any person(e.g salary to the employee, Rent to the owner), hence it would be categorized as Representative Person.

Format of Journal Entry of Outstanding Expenses

Journal Entry of Outstanding Expenses Format

Date	Particular	Dr/Cr.	Amount
31/03/2020	Expenses A/c	Dr	XXX
	To Outstanding Expenses A/c	Cr	XXX
	(Being Expenses recorded in accounts)
07/04/2020	Outstanding Expenses A/c	Dr	XXX
	To Cash/Bank A/c	Cr	XXX
	(Being Payment made of outstanding expenses)

If You are making the final account quarterly then you have to make this entry quarterly, but if you making the final account yearly, then at the time of year-end this entry has to make.

Examples of Journal Entry of Outstanding Expenses

Example 1

Suppose ABC Prv Ltd. Co. making payment of salary amounting to Rs.25000 for the month of March on the 7th of the following month. Write Journal Entry regarding this situation.

Solution:

Journal Entry at the year-end

Date	Particular	Dr/Cr.	Amount
31/03/2020	Salary A/c	Dr	25000
	To Outstanding Salary A/c	Cr	25000
	(Being Expenses recorded in accounts)

Journal Entry at the time of payment

07/04/2020	Outstanding Expenses A/c	Dr	XXX
	To Cash/Bank A/c	Cr	XXX
	(Being Payment made of outstanding expenses)

Example 2

Suppose ABC Prv Ltd. Co. making payment of rent amounting to Rs.25000 for the month of March on the 7th of the following month. Write Journal Entry regarding this situation.

Solution: