Journal Entries of Outstanding Expenses

Outstanding expenses' journal entries are same as I have explained in the journal entries of accrued expenses. Difference is only that Indian accountants use the term outstanding expenses and same term is used as accrued expenses in USA. So, we again explain this term for Indian students. Outstanding expenses are those 
expenses which are due but not yet paid. At the time of making financial statement, we pass its adjustment journal entry. 

Entry will be

Expenses account Debit Outstanding expenses account Credit

For example

Ram takes the loan of Rs. 10000. He has to pay the interest of 10% per year. Suppose, he has taken loan on 1st April 2011. He has paid 1000 interest on the 15th May 2012. On 31st March. 2012, he closed his account,  that time his outstanding interest will be 1000 which is payable but not paid. At 31st 2011 following journal entry will be passed.

On 3st March 2012 

Interest account debit 1000 Outstanding Interest Expense account credit 1000

In the profit and loss account 

Debit  |  Credit
                        ----------------
  Interest               Nil   |         
+ Outstanding Interest  1000   |   
                               |         

In the balance sheet 

                  Liabilities  |  Assets 
                        ----------------
Current liabilities            |         
  Outstanding Interest  1000   |   
                               |         

We will show this outstanding expense account in the debit side of profit and loss account. We also show it in the current liability side.

On the date of payment 15th May 2012


Outstanding Interest Expense Account Debit 1000

Bank Account Credit 1000

Outstanding Interest Expense Account Debit 1000   Bank Account Credit 1000

Advantage of Passing Journal Entry of Outstanding Expenses

1. Because we have taken the service of these expenses, so, it is very necessary to pass the journal entry of outstanding expense and to show it in the debit side of profit and loss account. By showing it in the debit side of profit and loss account, we are including it to compare with the revenues. So, it will be helpful for showing exact net profit or net loss.

2. Journal entry of outstanding expenses will also helpful for us to show the exact liabilities. After passing this journal entry, we can show our true financial position at the end of the financial period.