The outstanding expenses in the balance sheet can be defined as the amount which has been entered in the left-hand side of the balance sheet means in the liabilities section. These expenses have those expenses for which we used the services from that expenses but didn’t pay money for that. In simple words, it can be defined as the expenses for which we used the services but haven’t paid money for that, and these types of expenses have been considered as outstanding expenses.
What is Outstanding Expenses In Balance Sheet
And these outstanding expenses have been entered in the liabilities which has on the left side of the balance sheet. To understand it in an easier way let’s take one example. If we have taken a room for rent and we used that room for a month and now it’s time for paying that rent but we haven’t paid for it. This type of expense will be entered in the balance sheet of liabilities section.
As we have taken an example to understand the outstanding expenses in the balance sheet. So from the above discussion, we can also conclude that outstanding expenses are a due payment of a service which are not done after the consumption of that service. Outstanding can be divided into multiple parts as of their service use. So outstanding expenses can be divided as follows:-
1. Outstanding expenses in business
2. Outstanding expenses in personal use
Now let’s discuss these two types in detail so outstanding expenses could be more clear and could be easy to understand.
Outstanding expenses in business
As we know that in the case of business, a company use to buy goods at a large scale means if a company of clothes then that company will buy their raw material as threads at a large scale. As the company buys goods for their manufacturing at a large scale so it has very difficult to pay the total amount of money for all that goods which the company has bought.
The company use to pay money for their goods after an interval of time or simply we can say the company use to pay the amount for their after the company earn profit. So for that, the company takes time to pay the amount for goods. And this due amount comes under the outstanding expenses. A company uses the goods and didn’t pay money instantly for that goods so this due amount will be entered in the liabilities section of the balance sheet which has on the left-hand side of the balance sheet.
And this process has continued with the company and sellers of raw materials to the company. The reason for that due amount is simple, as the company use to buy raw materials at large scale. So this process of entering a due amount in the liabilities section of the balance sheet for the business comes under the outstanding expenses in business.
Outstanding expenses in personal use
In our day to day life, we use various types of services for which we pay an amount after a certain period of time or we can simply say, we pay the due amount after a certain period of time. As we use electricity for a month and we haven’t pay for that electricity then that comes under the outstanding expenses.
There is a lot of services which use in our daily life and we use to pay for them after a certain interval of time. If we take an example to understand it then, let us study in any private school and a month has completed and we haven’t pay fees to that school means we haven’t paid monthly fees to our school then that due amount or that due monthly fees will be outstanding expenses.
Because we have used the services of that school and we haven’t paid monthly fees of the school. So these types of services come under the outstanding expenses in personal use.
Outstanding expenses in profit and loss account
Outstanding expenses are that due to payments that haven’t been done after using the services. These expenses are either rent, bill or any other services for which payment is due. And this due payment for that particular service has been mentioned in the liabilities section of the balance sheet which has mentioned on the left-hand side of the balance sheet. In the case of balance sheet profit is charged in opposite to the profit. It is because the payment has due and the profit hasn’t counted in case of outstanding expenses.
It will very difficult to remember for the sellers who sold their goods to the company and the payment for their goods are not done at the end of the year. So to avoid this problem that businessmen use to write that record of due payment in the liabilities section of the balance sheet which is on the left-hand side of the balance sheet. And as it above mentioned that it has charged against the profit because of the due payment. So we can conclude from the above discussion that outstanding expenses do not count as a profit for a particular instant.
Outstanding expenses debit or credit
As above discussed that it is due payment for the services which a company or a person use but payment for that service hasn’t done at the end of the year. So we can easily say that it is a credit balance which has due after using services. And the record for these outstanding expenses has recorded in the liabilities section of the balance sheet which has on the left-hand side of the balance sheet.
After discussing the outstanding expenses we can now easily conclude that outstanding expenses are the due payment for any particular service where the company uses the service but the payment hasn’t done at the end of the year. And the main reason behind this due payment from the company has, they buy goods at a large scale. That’s why companies use to pay money after getting profit.
But here we don’t have the need to discuss the payment process. And this is not necessary that the outstanding expenses can only occur with businessman and company. It can also occur in our day-to-day life as if we take a room at a rent and we use that room for a month or a year and the payment hasn’t been done at the end of the year then it will also be considered as outstanding expenses. Outstanding expenses is simply a due payment for a particular service. It is not necessary to be with a company. So this is what the outstanding expenses in balance sheet are.