Monday, June 8, 2020

Journal Entry for Outstanding Expenses - With Example

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outstanding expenses

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.
journal entry of outstanding expenses

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:

Journal Entry at the time of year-end(31st March)

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

Journal Entry at the time of making payment

07/04/2020 Outstanding Rent A/c Dr XXX
 To Cash/Bank A/c Cr XXX
(Being Payment made of outstanding Rent)
journal entry of outstanding expenses, journal entry of outstanding salary, journal entry of outstanding rent

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Written by: Pankaj Kumar


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