Outstanding Expenses Adjustment in Final Accounts

 

Adjustments given below trial balance must be adjusted for final account.

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit. 

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):  

 

MAJOR ADJUSTMENTS IN FINAL ACCOUNTS:

Closing stock Outstanding expenses Prepaid expenses Accrued revenue  or income Unearned or prepaid revenue Depreciation on assets Appreciation on assets Written off or amortized Purchase or sale of fixed assets Bad debts, provision and discount Bad debts recovered

Goods loss by fire and insurance claim Goods loss by fire and insurance claim Goods distribute as free sample Manager’s commission Bonus or pension to employees Create reserve or fund  Goods sold on sale or return basis Hidden adjustment: (a) Interest on loan or debenture (b) Interest on investment (c) Monthly rent and salary

 

 

Outstanding Expense

Outstanding is also called due, payable, accrued, owing expenses or to be paid.

These expenses are incurred in the business but not yet paid.

These are to be considered as expenses.

Some examples are outstanding salary, outstanding interest, outstanding rent, outstanding wages etc.

It is debited in profit and loss account and is shown in liabilities side of balance sheet.

ADJUSTMENT: 2A

Extracted information:

Salary payable Rs 60,000

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

Journal Entry

Date	Particulars		LF	Amount	Amount
	Salary account                                              To Outstanding salary account (Being- salary payable or due)	Dr		60,000	60,000

 

P&L Account

Particulars		Amount	Particulars		Amount
To  Salary       Outstanding salary	Nil +60,000	60,000	By Closing stock		230,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Outstanding salary		60,000

 

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ADJUSTMENT: 2A

Extracted information:

Wages paid Rs 125,000 and still payable Rs 20,000.

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

Journal Entry

Date	Particulars		LF	Amount	Amount
	Wages account                                               To Cash account           To Outstanding wages account (Being- wages paid and payable)	Dr		145,000	125,000 45,000

 

Trading Account

Particulars		Amount	Particulars		Amount
To Wages       Add: Outstanding wages	125,000 +20,000	145,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Outstanding wages		20,000

 

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