Outstanding 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.

The Examples of Outstanding Expenses are:

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

Bills passed on due but not yet paid.

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 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.

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 the 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. 

Financial Statement

Treatment

Income Statement

Add to Respective Expense Account

Balance Sheet

Show Under the Head ”Current Liabilities"


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:

Expense A/C

Debit

Debit the increase in expense

To Outstanding Expense A/C

Credit

Credit the increase in liability


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.

FAQs (Frequently Asked Questions)

1. What is a Credit Balance?

Ans. A credit balance on a billing statement is an amount that the card issuer owes. Credits are also added to an account as the rewards one has earned or because of a mistake in a consequent bill. This is the total of the credits that exceed the amount you owe; the statement will show a credit balance.

Many accounts, like the Expense accounts, are reset to zero at the beginning of the new fiscal year or an accounting year. 

The credit accounts rarely have a positive balance and the debit accounts rarely have a negative balance at any time. A credit adds only a negative number.

2. What is a Balance Sheet?

Ans. A balance sheet is a type of financial statement which reports a company's assets, liabilities, and the shareholders' equity at a specific point of time, and which provides a basis for calculating the rates of return and evaluating the capital structure.

The main purpose of a balance sheet is to give the interested parties an idea of the company's financial position in the market, in addition to its display of what the company owns and owes. This is important that all investors know how to use, analyze and read a balance sheet. This balance sheet may give insight or reason to invest in this stock.

3. What is Meant By an Accounting Period?

Ans. An accounting period is the only time frame for a business to prepare its financial statements and its report about the financial performance and the position to the external stakeholders. The accounting period could be after three, six, or twelve months. The accounting period generally coincides with the business' fiscal year.