Expanded Accounting Equation: Expenses, Payable, Advance Expenses

 

Expenses, Outstanding Expenses, Prepaid Expenses in Expanded Accounting Equation

Factory, office and warehouse need money to operate them.

Expenses related to daily, weekly, monthly, quarterly, half yearly and yearly known as operating expenses.

Operating expenses includes manufacturing expenses, administrative expenses, office expenses, selling and distribution expenses.

All the costs related to management and administrative of the organization is known administrative expenses.

These expenses are incurred day-to-day office activities.

The main expenses are office salary, management expenses, office expenses, office rent etc.

These expenses are deducted from capital in accounting equation in sole proprietorship.

These expenses are debited in profit and loss account.

 

Outstanding expenses

Outstanding is expense incurred but not paid.

Outstanding is also known as payable, to be paid, unpaid, due.

It is liability for the organization.

It is shown in liabilities side of accounting equation or balance sheet.

 

Prepaid expenses

Prepaid is paid in advance before.

Outstanding is also known as payable, to be paid, unpaid, due.

It is liability for the organization.

It is shown in liabilities side of accounting equation or balance sheet.

 

Keep in Mind (KIM)

Factory overheads:	Office overheads:	Selling and distribution overheads:
Productive expenses Unproductive expenses Direct/indirect materials Consumed store All factories expenses like: Estimating expenses, drawing Rent, rates, stationery expenses Phone, mobile and internet bills Lighting, heating, power Salary to general staff Manager or director salary Depreciation on factory assets Factory repairs and maintenance	Establishment charge Manager or director salary All office expenses like: Salary to office staff Rent, rates and tax Stationery, postage expenses Phone, mobile and internet bills Bank charge, audit fee, Insurance Depreciation on office assets Office repairs and maintenance	Carriage outward (on sales) Advertisement Free sample Salary to sales agent Commission to sales agent Rent to warehouse or godown Stationery, postage expenses Phone, mobile and internet bills Insurance of warehouse Depreciation on warehouse Depreciation on delivery van Warehouse repairs and maintenance

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 7

PK Glass House has following extracted data for the month of April 2020:

a.     Business started with cash Rs 23,000; bank balance 37,000 and stock Rs 80,000.

b.    Goods sold for cash Rs 45,000.

c.     Rent paid for Rs 5,000 by cheque.

d.    Electricity bill payable Rs 600.

e.     Internet bill paid in advance Rs 4,500.

f.       Salary paid part time accountant in cash Rs 4,000 and still payable Rs 2,000.

g.     Non-life insurance paid by cheque Rs 1,200; it includes Rs 300 as advance.

Required: Expanded accounting equation

[Answer: Assets = Rs 120,100; Capital = Rs 117,500; Liabilities = Rs 2,600]

SOLUTION:

Explanation:

(a) Cash, bank and stock increases assets; it also increases capital.

(b) Goods sold for cash increases cash but decreases stock.

(c) Rent paid by cheque decreases bank; it is expenses and decreases capital.

(d) Electricity bill paid decreases cash; it is expenses and decreases capital.

(e) Advance internet bill decreases cash; but it is prepaid so it increases asset.

(f) Salary paid decreases cash; it is expenses so decreases capital. Still payable is outstanding; it increases liabilities.

(f) Insurance decreases cash; it is expenses so decreases capital. Advance insurance increases assets.

Accounting Equation

Particulars		Assets								=	Owner’s equity		+	Liabilities
		Cash	+	Bank	+		Stock	+	Advance	=	Capital ±			Payable
a	Business started	23,000	+	27,000	+		80,000	+	0	=	130,000		+	0
	First equation	23,000	+	27,000	+		80,000	+	0	=	130,000		+	0
b	Goods sold in cash	45,000		0			(45,000)		0		0			0
	New equation	68,000	+	27,000	+		35,000	+	0	=	130,000		+	0
c	Rent paid by cheque	0		(5,000)			0		0		(5,000)	exp		0
	New equation	68,000	+	22,000	+		35,000	+	0	=	125,000		+	0
d	Electricity bill payable	0		0			0		0		(600)	exp		600
	New equation	68,000	+	22,000	+		35,000	+	0	=	124,400		+	600
e	Internet bill paid in advance	(4,500)		0			0		4,500		0			0
	New equation	63,500	+	22,000	+		35,000	+	4,500	=	124,400		+	600
f	Salary paid and payable	(4,000)		0			0		0		(6,000)	exp		2,000
	New equation	59,500	+	+22,000	+		35,000	+	4,500	=	118,400		+	2,600
e	Insurance paid advance	0		(1,200)			0		300		(900)	exp		0
	Final  equation	59,500	+	20,800		+	35,000	+	4,800	=	117,500		+	2,600

 

#######

Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

#####

 

Alternatively,

Accounting Equation

Particulars		Assets		=	Capital		+	Liabilities
a	Business started	23,000 27,000 80,000	cash bank stock	=	130,000		+	0
	Beginning equation	130,000		=	130,000		+	0
b	Goods sold in cash	45,000 (45,000	cash stock		0			0
	New equation	130,000		=	130,000		+	0
c	Rent paid by cheque	(5,000)	bank		(5,000)	exp		0
	New equation	125,000		=	125,000		+	0
d	Electricity bill payable	0			(600)	exp		600	O/s
	New equation	125,000		=	124,400		+	600
e	Internet bill paid in advance	(4,500) 4,500	cash prepaid		0			0
	New equation	125,000		=	124,400		+	600
d	Salary paid and payable	(4,000)	cash		(6,000)	exp		2,000	O/s
	New equation	121,000		=	118,400		+	2,600
e	Insurance paid and paid in advance	(1,200) 300	bank prepaid		(900)			0
	Ending equation	120,100		=	117,500		+	2,600

 

#####

PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 7A

PK Glass House following extracted financial data:

May 1, Balance of cash Rs 59,500; bank Rs 20,800; stock Rs 35,000; advance Rs 4,800; capital Rs 117,500 and payables Rs 2,600.

May 5, Advance expired this month: insurance of Rs 100 out of Rs 300; internet Rs 1,500 out of Rs 4,500.

May 10, Goods sold in cash Rs 25,000 at 60% profit

May 15, Rent paid for Rs 5,000 through online payment.

May 25, Electricity bill payable Rs 600.

May 30, Salary paid to part time accountant Rs 2,000 of last month and Rs 6,000 current month.

May 31, Cash deposited into bank 60,000.

Required: Expanded accounting equation

[Answer:  Assets = 31,500; 75,800; 10,000; 3,200;

Owner’s equity = 119,300; Liabilities = 1,200]

***********

Thank for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मीडिया