What Are Accrued Expenses / Outstanding Expenses - Definition - Meaning - Examples - Explanation

What Does Outstanding Expenses Mean

Outstanding Expenses are those Expenses which are not paid by the businesses but the services or benefits against these have been received by the business during the accounting period. These are categorized as Current Liabilities on Balance Sheet. These are also known as Expenses Payable, Accrued Expenses (which has been incurred but not yet recorded in the Books of Accounts), Accrued Liabilities or Accruals.

For Example, Salaries Payable, Wages Payable, Fees Payable, Electricity Bills Payable, Telephone Bills, etc.

Outstanding Expenses Journal Entry / Accrued Expenses Journal Entry

Suppose, the company accrued salaries of Rs. 500000 for its employees for the month, then following Adjusting Entry is passed in the Journal of business as shown below:

                                                 Salaries a/c     500000

 

                                                                   Outstanding Salaries a/c    500000

(Salaries Outstanding for the Month)

The effect of Outstanding Salaries on Final Accounts is that it is shown on Balance Sheet and Salaries Expense is shown in the Income Statement / Profit And Loss Account as an indirect expense that may be classified as Operating Expense Under Selling & Admin Expenses.

Accrued Expenses Journal Entry Reversing

                                                     Accrued Expenses a/c  XXX

                                                                                          Expenses a/c  XXX

            (Now Expenses Not Remained Accrued As Expenses Paid)

In our example, when the company actually paid salaries to employees, the accrued salaries journal entry is reversed by debiting outstanding salaries and crediting salaries account and following journal entry is passed for salaries paid for cash or by cheque / check to employees as shown below:

Paid Salaries For Cash Or By Check

                                                                Salaries a/c     500000

                                                                                 Cash a/c    50000

    (Paid Salaries For Cash Or Check)

Outstanding Expenses T Account or Ledger is prepared to record journal entries related to these and closing balance is transferred to Balance Sheet if these are left at the end of accounting. If full amount of Salaries paid to employees during the current period, then Outstanding Expenses Account is closed by passing Closing Journal Entries.