Outstanding Expenses

Outstanding expense is an essential accounting and finance management concept that accurately depicts liabilities. The term “outstanding expense” reflects the expenses incurred but not paid during the accounting period. The expenses are mentioned as liabilities in the final accounts until paid. 

 

What is the meaning of Outstanding Expenses?

Outstanding expenses are the total unpaid amount a business or an individual owes for the goods received. These expenses are recorded in the accounts without the complete payment. The outstanding expenses follow the “accrual accounting principle,” which states that all the expenses should be recorded when they incur and not after payment. 

The outstanding expenses have a credit balance and are treated as a liability. 

 

Key Examples of Outstanding Expenses 

• The employee salaries that are due and not paid
• The unpaid office space rent 
• Any unsettled utility bill
• Any interest on unpaid loans 
• Any unpaid government taxes 

 

How are Outstanding Expenses Recorded?

Outstanding expenses are recorded as current liabilities in the accounting books. They represent the amount to be paid shortly. 

Accounting treatment for the outstanding expense at the time of recording: 

 

Expense Account                                  Dr.                    XXXX To Outstanding Expense                      A/c                    XXXX (Being outstanding expense recorded)

 

Accounting treatment for the outstanding expense after being paid:

 

Outstanding Expense                              A/c              Dr.                     XXXX To Cash/Bank                                       A/c                                          XXXX (Being outstanding expense paid)

 

• Balance Sheet: In a balance sheet, the expenses are reflected under current liabilities

• Profit & Loss Account: All the expenses in a profit and loss account are recorded in the profit and loss account

How can you manage the Outstanding Expenses?

The outstanding expenses ensure that the financial statements are recorded accurately. Understanding their source and history is very important for proper financial management and cash flow. Adequate accounting treatment of the outstanding expenses ensures compliance with the economic reports and better financial planning. 

Timely payments, transparent record-keeping, and budget allocation for all expenses ensure smooth operations. 

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Frequently Asked Questions (FAQs) 

Is there any difference between outstanding expenses and accrued expenses?

Yes, outstanding expenses are incurred and unpaid, whereas the accrued expenses may have anticipated costs yet to be billed. 

Does outstanding expense affect a company’s health?

Outstanding expenses increase the liabilities, reduce the working capital, and affect the short-term cash flow.

Are outstanding expenses written off?

No, they should be paid if they are legally waived or written off for valid reasons.