Outstanding Expense - Adjusting Entry - By Saheb Academy
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- Опубліковано 17 лип 2024
- Here I have explained the concept of Outstanding Expense and it's accounting treatment in Profit and Loss Account and Balance Sheet in a simple way.
Outstanding Expense is also known as Accrued Expense. ( Accrual )
I have shown how to pass Adjusting Entry and Reversing Entry with complete logical understanding.
⏱TIMESTAMPS
00:00 - Intro
01:05 - Recap of Previous Video
04:14 - Open Transactions
09:10 - Outstanding Expense
17:28 - Practical Example with Financial Statements
38:05 - Format of EXPENSE A/C with Outstanding Expense & Prepaid Expense
Previous Video : Adjusting Entries Concept
• Adjusting Entries EXPL...
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This is for the students of CLASS 11, B.COM, BBA, CA FOUNDATION, CA INTER, CMA, ACCA and any other accounting courses.
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Thanks again for making video s, I m Ur Big Fan, plz make 1 video on Detailed Income Statement
Hello, You can create a book , the working papers which your are presenting in every video for every concepts presentation really It will be use full for us to understand, refer and for recap for many exams .
Great explanation!
You are very amazing teacher ❤
Hello Sir,
I am your biggest fan, can you please make video on Income statement+ balance sheet and TDS, GST
Please make video on trading account, p and l and balance sheet
#1 Financial Statements - Concept - Easiest Way - Class 11 - By Saheb Academy
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Sir can you provide these notes what you are showing in video in your description in Pdf form so that we can download.thanks❤
Income Statement + Balance Sheet + Cash Flow.. It's request sir❤
Yes pls pls waiting
#1 Cash Flow Statements - Concept, Format and Adjustments
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#2 Cash Flow Statements - Problem 1 - Indirect Method
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It would be more helpful if u start doing videos on TDS and TCS payables entries
Cant we do directlt outstanding salary dr
To bank
Why to do outstanding dr
To salary
In next financial year expense will increase again
Same Doubt Man. Do You find out why he had done it ?
@@ariee101 at the end of the mont we pass salary entry as salary a/c dr to salary payable and then salary payable to bank
just I need to know that when this transaction pass at the end of the financial year does the entry effect new period ?
ChatGPT
Yes, the salary payable entry at the end of the financial year does affect the new period, but let's break down how it works:
End of Financial Year Entry:
At the end of the financial year, you accrue the salary expense incurred but not yet paid:
Salary Expense A/C Dr
To Salary Payable A/C
This entry recognizes the expense in the period it was incurred, which is the closing financial year.
Beginning of New Financial Year:
When the salary is actually paid in the new financial year, you record the payment:
Copy code
Salary Payable A/C Dr
To Bank A/C
This entry clears the liability created at the end of the previous financial year.
Impact on Financial Statements:
Previous Financial Year: The salary expense is recognized in the profit and loss statement, reducing the net income. The salary payable is shown as a liability on the balance sheet.
New Financial Year: The liability (salary payable) is reduced when the payment is made, affecting the cash balance.
To summarize:
The salary expense is recognized in the financial year it was incurred (previous financial year).
The actual payment affects the cash flow in the new financial year but does not affect the new period's profit and loss statement as the expense was already recognized previously.
This approach ensures accurate matching of expenses to the period in which they were incurred, adhering to the accrual basis of accounting.
Q @then why reversing entries passing like salary payable to salary in new year such situation?
ChatGPT
Reversing entries are used to simplify the accounting process in the new financial year, ensuring that expenses and revenues are not double-counted. Here’s why and how reversing entries work, specifically for salary payable:
End of Financial Year Accrual:
At the end of the financial year, you accrue the salary expense to match it with the period it was incurred:
Salary Expense A/C Dr
To Salary Payable A/C
Beginning of New Financial Year Reversing Entry:
At the start of the new financial year, you reverse the accrual entry to avoid double-counting the expense when the salary is actually paid:
Salary Payable A/C Dr
To Salary Expense A/C
This reversing entry cancels out the accrual entry from the previous year, resetting the salary expense and payable accounts.
Actual Payment in New Financial Year:
When the salary is paid in the new financial year:
Salary Expense A/C Dr
To Bank A/C
This entry records the actual payment of the salary expense in the new period.
Purpose of Reversing Entries:
Preventing Double-Counting: Without reversing entries, the salary expense would be recorded twice in the new financial year - once when reversing the accrued expense and again when the salary is actually paid.
Simplification: Reversing entries streamline the accounting process, making it easier to track and match expenses with their corresponding periods without manually adjusting for accruals.
Impact on Financial Statements:
Previous Financial Year: The salary expense is recognized correctly as an accrual, impacting the profit and loss statement and showing as a liability on the balance sheet.
New Financial Year: The reversing entry cancels out the accrued expense, and the actual payment is recorded, ensuring that the expense is not overstated in the new period.
In essence, reversing entries provide a systematic way to handle accrued expenses, ensuring accuracy and simplicity in financial reporting.
Q3which type of treat ment is better
ChatGPT
Both methods-using reversing entries and not using them-are valid and commonly used, but the choice depends on the complexity of your accounting system and the preference for simplicity and accuracy in financial reporting. Here's a comparison to help determine which treatment might be better for your situation:
Without Reversing Entries
End of Financial Year Accrual Entry:
Salary Expense A/C Dr
To Salary Payable A/C
Payment in New Financial Year:
Salary Payable A/C Dr
To Bank A/C
Pros:
Direct and Simple: No need for additional reversing entries.
Clear Tracking: Accruals and payments are clearly matched and tracked.
Cons:
Manual Tracking: Requires careful tracking to ensure expenses are not double-counted.
Potential for Errors: Higher risk of errors if the accruals are not reversed properly.
With Reversing Entries
End of Financial Year Accrual Entry:
Salary Expense A/C Dr
To Salary Payable A/C
Beginning of New Financial Year Reversing Entry:
Salary Payable A/C Dr
To Salary Expense A/C
Payment in New Financial Year:
Salary Expense A/C Dr
To Bank A/C
Pros:
Simplified New Year Accounting: Clears the previous year’s accruals, simplifying the new year’s entries.
Prevents Double-Counting: Automatically prevents expenses from being recorded twice.
Consistency: Standardizes the process of handling accrued expenses, reducing the risk of errors.
Cons:
Additional Step: Requires an extra step of reversing entries.
Initial Complexity: May be more complex initially for those unfamiliar with the process.
Which is Better?
Reversing Entries are generally considered better for businesses that want to:
Ensure accuracy in financial reporting.
Simplify the accounting process in the new financial year.
Avoid the risk of double-counting expenses.
Without Reversing Entries might be preferable for:
Smaller businesses with simpler accounting needs.
Situations where manual tracking is manageable and closely monitored.
Recommendation
For most businesses, especially those with more complex accounting needs, using reversing entries is the preferred method. It provides clarity, prevents errors, and simplifies the accounting process in the new financial year. However, the final choice should consider the specific needs and capabilities of your accounting team and system.
❤
15:05 suppose if we receive the electricity bill on 16th of every month, like for example if we receive march bill on 15th of April of next accounting year, what amount should we charge in the month of March as accrued?? Because we will only come to know what is the actual amount of bill will be for March in April 16th na, can you explain please this.
Sir can u make video on GST please
first 😊
the pdf link is not working
?