Debit and Credit Ledger Selection on Outstanding Expenses/Expenses Payable

Meaning of Outstanding Expenses :

Outstanding Expenses refer to the expenses which are incurred but not yet paid. This type of transaction can be treated as a Credit transaction i.e expenses made on Credit basis.

Some other terms used in place of term 'Outstanding Expenses' are :

  • Expenses Payable

  • Liabilities for Expenses etc.

Journal Entry for recording Outstanding Expenses in the Books of Account.

Journal Entry for Outstanding Expenses

Let's take an example for more understanding on Outstanding Expenses.

In the Books of Mr.Abhisek Mishra,

Salary of employees for the month of April' 2021 paid on date 06/05/2021 by Cash.

Salary details.

Name and Salary amount of the Employees.

  1. Priyanka Singh  ₹12900/-

  2. Rajesh Sribastav ₹15500/-

For recording this transaction in the Books of Account on date 30/04/2021,expenses on account of Salary due for the month of April' 2021 is ₹28400/-(Priyanka Singh ₹12900/- + Rajesh Sribastav ₹15500/-).

Journal Entry for the above transaction on date 30/04/2021.

Journal Entry on Salary Payable to Employees
In the above journal Entry Ledger Account of Priyanka Singh and Rajesh Sribastav both are under Account head Salary Payable/Outstanding Salary.

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction 

Step -1

In first step, we have to identify the Ledger Accounts involved in the above transaction.

As a result,three Ledger Accounts are found in this transaction.

The three Ledger Accounts are :

  • Salary A/c

  • Priyanka Singh A/c

  • Rajesh Sribastav A/c

Debit and Credit Ledger selection on Salary Expense Payable to Employee

Ledger Account of employee Priyanka Singh and Rajesh Sribastav both are under Primary Ledger Account/Account Head 'Salary Payable'.

Step - 2

In second step,we have to find out the type of Ledger Accounts involved by using either one of the Accounting Approach.

The above three Ledger Accounts mentioned in step-1 are related to type

Nominal Account(Salary A/c),Personal Account(Priyanka Singh A/c) and Personal Account(Rajesh Sribastav A/c) in Traditional Approach.

Expense Account(Salary A/c),Liability Account(Priyanka Singh A/c) and Liability Account(Rajesh Sribastav A/c) in Modern Approach.

Type of Ledger Accounts involved on Salary Expense payable to employee
Step - 3 

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Salary A/c(Expense), Priyanka Singh A/c(Giver) and Rajesh Sribastav A/c(Giver) for the business in Traditional Approach.

Salary A/c(Expense/Expenditure Account) increases, Priyanka Singh A/c(Liability Account) increases and Rajesh Sribastav A/c(Liability Account) increases in Modern Approach.

Flow of Ledger Accounts on Salary Expense Payable to employee
Step - 4

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

Debit and Credit Rule
As a result, Salary A/c shows a Debit effect for ₹28400/-.

Priyanka Singh A/c shows a Credit effect for ₹12900/- and

Rajesh Sribastav A/c shows a Credit effect for ₹15500/-.

Outstanding Expenses(Salary) - Salary A/c(Dr.) and Salary Payable A/c(Cr.)
Location: Cuttack, Odisha, India

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