The outstanding expenses are those expense which are due but not paid. In order to know the exact business result such expenses are accounted in the period as it occurred.
The amount shown against an expense item in the trail balance represents the amount actually paid, and if any amount remains unpaid on account of an expense correctly attributable to the given period,such unpaid or outstanding expenses should be adjusted in the accounts before the final accounts could be correctly drawn up.
Example of Outstanding Expense
Suppose Salary amounting to Rs 60000 were paid during the year December 31, 2016.This amount,will then shown in the trail balance drawn up at the date.Suppose, further that salary amounting to Rs 5000 are outstanding on December 31.Therefore,the total expense on salary for the year will be 65000.
Journal Entry For Outstanding Expense
The adjusting entry will be debit the expense (Salary )account with an additional Rs 5000 and to credit a liability ( Outstanding Salary ) account with the amount payable, thus:
The Ledger account will be written up thus:-
The balance in this account Rs 65000 now shows the salary expense for the year and will be debited to profit and loss account.
Outstanding salary account is a liability account.the balance of which represents a debt to the employees.As such this balance is shown on the liabilities side of the balance sheet.The double entry is thus completed as the amount was first debited to Trading Account ( From salary account).