Outstanding Expenses: Meaning and Accounting Treatment

Firstly, let us decode ‘Outstanding’ expenses. Meaning of ‘out’ ‘standing’ is something which is been left out, not yet done. So, simply put through outstanding expenses in business means, expenses which is not yet paid. In this case, the business is at the liability of paying these expenses. These expenses are accounted for at the end of the year or over some time to do accounting procedures with accuracy and also so that the business individuals get a fair image of how much they owe to the outsiders.

In this content of accounting, we will discuss these expenses known as the accounting expenses and check the examples, recording method and journal entry of these expenses.

What are Outstanding Expenses in Accounting?

The outstanding expense is a type of personal account which have a credit balance and is this is treated as a liability for the business firm. The Outstanding Expense is represented on the liability side of the balance sheet of a business. To perform accounting with accuracy, these expenses are required need to be realized whether they are paid or not.

An Outstanding Expense is a type of expense that is due but has not been paid. This expense becomes outstanding to the company when, this has taken the benefit, but the related payment has not been made simultaneously. Examples for Outstanding Expenses - Rent due but not yet paid.

Outstanding Expenses in Business

In business and trade, payments are not always paid or received when due.

This Outstanding Expense is an expense that is due but has not been paid as of the due date.

The expense becomes outstanding when the company has acquired the benefit, but its related payment has not been made.

Check Out the Examples of Outstanding Expenses

Some of the examples of outstanding examples are as follows:

1. Rent is past due the previous year but has not yet been paid.

2. Bills passed on due but not yet paid.

3. Subscriptions passed on due but not yet paid.

Outstanding expenses come under the head of Current Liability in the Balance Sheet.

Outstanding expenses are these expenses that have been incurred in the current accounting period and these are due to be paid, however, their payment is not made. Such as this item is to be treated as an expense payable for the business.

Other examples of Outstanding Expenses are – Outstanding salary, outstanding rent, outstanding subscription, outstanding wages, etc. These outstanding expenses are recorded in the books of finance at the end of an accounting period to show the accurate figures of a business.

The outstanding expense is a personal account expense that is to be treated as a liability for the business. This is shown on the liability side of a balance sheet.

Outstanding Expenses - Debit or Credit? 

As mentioned earlier, this outstanding expense is a type of personal account with a credit balance and this is treated as a liability for the business. This is recorded on the liability side of the balance sheet of a business.

The amount of expenditure that has not yet been paid is a type of liability for the organization. The person to whom the organization owes is the creditor. As such, the amount of expenditure that is outstanding has not yet been taken into the books is credited to the Expenditure Outstanding a/c in this case.

Outstanding Expenses in Profit and Loss Account 

The outstanding expenses are certain expenses that are incurred but not paid. These outstanding expenses are related to a given accounting period that is not paid in the same accounting period. Expenses like these are salaries, rents for each month that are paid in the following months. These expenses, which are due for payment in the given accounting year but this payment will be made in the future accounting year, payment of such items is then postponed, these are the Outstanding or the Unpaid expenses.

To bring a true result, this is necessary to account for these expenses in that year which they have incurred, irrespective of the fact whether they are paid in the same accounting year when they fall due or not. All such outstanding expenses which are the liability account are to be recorded in the accounting period if they relate to this accounting year.

The outstanding expense is a type of personal account, which carries a credit balance and thus this is treated as a liability for the business. The outstanding expense is represented on the liability side of the balance sheet of a business. Just like other expenses incurred in a business, the outstanding expense is also charged against the profit which is obtained for the current year.

As the journal entry for the outstanding expenses is posted they are then placed appropriately in the final accounts. Following is the treatment for an outstanding expense in the case in a financial statement and balance sheet.

Outstanding Expenses Journal Entry Example

Outstanding expenses are those expenses that fall due in the current accounting period but are not being paid immediately. The benefits of these expenses have been consumed due to some reason which is not paid until the present accounting period terminates. Below is the journal entry for outstanding expenses:

Accounting entry for an outstanding expense involves two accounts, that are - Outstanding Expense Account and its related Expense Account.

These expenses are an obligation for the business and therefore they are treated as a liability. The accounting rule applied is that “credit the increase in liability” and “debit the increase in expense” as chalked by the modern rules of accounting.

They are also known as expenses that are due but not paid and this is to be shown in the financial books to avoid overstatement of any earnings.