When do You Adjust the Amount of Outstanding Expenses?

We know that outstanding expenses are those expenses whose services, we have taken but we did not pay the cost of service. It is possible, there are lots of times when we do not pay on the time.

I can give the example of a college who pays his employees after 3 or 4 months. All his employees have right to get salary every month but College do not pay them. So, end of the month salary due but not paid is the example of outstanding expense. But it is not necessary to adjust the amount of outstanding expenses. But if we prepare financial statement every month for taking decisions, we will adjust the amount of outstanding expenses.

In this adjustment, we have to show its effect on our financial statement. Without adjustment, there will not be any effect on our financial statement. Outstanding expenses will increase the cost of business and decrease the income. It also increase our current liability. If we do not adjust outstanding expense at its proper time, we can not show it as current liability in the balance sheet and as the decrease in our total income. Without this adjustment, our current asset and net profit will be over-value.

So, Remember,

1. you can adjust the outstanding expenses at the end of your financial period or calendar period.
or

2. You can adjust the outstanding expenses when you will make the financial statements for decision making. You can make financial statement monthly or quarterly  So, you can adjust the outstanding expense also monthly and quarterly.