Financial Statements - II

of profit or loss. The entry to bring such expenses into account is : The above entry opens a new account called Outstanding Expenses which is shown on the liabilities side of the balance sheet. The amount of outstanding expenses is added to the total of expenses under a particular head for the purpose of preparing trading and profit and loss account. For example, refer to Ankit’s trial balance (refer figure .

). You will notice that wages are shown at Rs. , . Let us assume that Ankit owes Rs.

as wages relating to the year - to one of his employees. In that case, the correct expense on wages amounts to Rs. , instead of Rs. , .

Ankit must show Rs. , as expense on account of wages in the trading and profit and loss account and recognise a current liability of Rs. towards the sum owed to his staff. It will be referred to as wages outstanding and it will be adjusted to wages account by recording the following journal entry: The amount of outstanding wages will be added to wages account for the