Journal entry for outstanding expenses | Example

outstanding expenses feature image 1 - Journal entry for outstanding expenses | Example

Journal entry for outstanding expenses are very simple to remember but the application of golden rules of accounting on it is difficult because the Personal rule of accounting is applied on an outstanding expense instead of Nominal rules.

Most of students or professionals are trying to apply nominal rule because it is an expense, but we will help you to understand how to apply the personal rule on outstanding expenses. But first, you have to know the means of outstanding expense.

1. What is Outstanding Expense? 

The outstanding expense means when we avail the services of someone but we did not pay him yet. In simple amount due for expense but not paid yet.

Example:

  • Salary and Wages due for the month but not paid.
  • Rent due for the office building but not paid.
  • Electricity charges due but not paid.
  • Auditor Fee due but not paid.

2. Journal entry for outstanding expenses with the golden rule:

Example 1: Salary for the Month of Jan-18 Rs 50,000 due but not paid yet

The first account is salary, it will be treated as like simple expense entry shown below:

Salary -> Expense a/c -> Nominal rule ->Expense met by Business -> Debit, All Expenses & losses

The second account is due but not paid yet = Outstanding Salary: (as explained above)

In the personal rule, there are three types of persons 

  1. Natural Person: It means made by Nature like Mr Ram, Mr sham, Mrs Sita, Miss Gita, etc.
  2. Artificial Person: It means made by the law like Ram & Sons Ltd., HAPPSS Store Ltd., Amazon India Pvt. Ltd., etc.
  3. Representative Person: It means the Representative of a natural person or group of persons.

Like: Outstanding Salary a/c represents the number of employees whose salary not paid yet.

How the personal rule of accounting applied on outstanding expenses - Journal entry for outstanding expenses | Example
How the personal rule of accounting applied to outstanding expenses

Now, We get the account which will be debited and credited so entry will be posted as shown below:

Journal entry for outstanding expenses  - Journal entry for outstanding expenses | Example
Journal entry for outstanding expenses

3. Journal entry for outstanding expenses with the modern rule.

With the Modern rule of accounting it is too easy:

Example 1: Salary for the Month of Jan-18 Rs 50,000 due but not paid yet

The first account is salary, it will be treated as like simple expense entry shown below:

Salary -> Expense a/c -> Expenses Rule ->Increase in Expenses -> Debit.

The second account is due but not paid yet = Outstanding Salary

Outstanding Salary -> liability a/c -> liability Rule ->Increase in liability -> Credit.

Journal entry remains the same as above:

Journal entry for outstanding expenses  - Journal entry for outstanding expenses | Example
Journal entry for outstanding expenses
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