Outstanding Expenses In Accounting

a) Outstanding Expenses.

Outstanding expenses is an expense for which the benefits has been recived but which has not paid for the end of the period. Outstanding is also known as owing, accrued etc. for example salary owing, salary outstanding, rent outstanding, etc. outstanding expenses are recorded in the books at the end of an accounting period to show true number of a business.

Outstanding expenses shown as a expenses in income statement and current liabilities in the balance sheet at the end of year.

Journal entry for outstanding Expenses is

Expenses a/c Debit

Outstanding expense a/c Credit

Example for outstanding expenses.

In trial balance wages is $3200

In the adjustment It says wages amount to $300 were outstanding at 30th September

It needs to be charged to profit and loss every year. The amount charged in a year to profit and loss for depreciation is based upon an estimate of how much the overall economic usefulness of a fixed assets has been up in that accounting period.It represents an estimate of how much of the overall economic usefulness of a fixed asset has been used up in each accountine period. In depreciation there are three method we calculate fixed assets. They are staright line method, reducing balance method and revaluation method.

Straight line method.

It is the method of calculating depreciation that involves deducting tha same amount every accounting period from the original cost of the fixed assets. Straight line method is also convert to use where no reliable estimate can be made regarding the pattern of economic benefits expected to be derived over an assets useful life.

More over in this method the number of years of use is estimated. The cost is than devided by the number of years, to give the depreciation charge each year. Straight line method can be calculate using any of the following formulas:

= (cost – estimated disposal value) / No of expected years of use Or

= (cost – estimated disposal value) x rate of

Therefore in income statement under expenses depreciation write lorry $5000. And in the balance sheet under fixed assets lorry should be cost minus depreciation. So it will be $22000- $5000. = $17000.

Reducing or Diminishing balance method.

In this method, a fixed percentage for depreciation is deducted from the cost in the first year. In the second or last years the same percentage is taken of the reducing balance. In this method the amount of depreciation decreases gradually, while the cost of repairs increases.so the total of depreciation and repairs remain more or less the same each year. Hence, it cause little or no change in annual.

This method is also known as diminishing balance method,since this method don’t have a proper formula. But there is a way to calculate depreciation under reducing balance method. The example of how to calculate depreciation are as follows:

If a machine is bought for $20000 and depreciation is to be charged at 10% , the calculation for the first three years would be: $

Cost 20000

First year depreciation (20000 x 10%) (2000) 18000

Second year depreciation (18000 x 10%) (1800) 16200

Third year depreciation (16200 x 10%)