The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below: What are Outstanding expenses? As the name suggests, outstaRead more
The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below:
What are Outstanding expenses?
As the name suggests, outstanding expenses are the expenses that are due but have not been paid yet. It means that the business is supposed to pay the amount due but it has not paid the same at the end of the accounting period.
Outstanding expenses are recognized as a current liability because the business is liable to pay such expenses. These expenses are recorded in the books of accounts but the payment is still pending.
Some examples of outstanding expenses are:
- The electricity bill is due for the month of January but has not yet been paid on 31st January.
- Salaries of employees of 50,000 is due for the month of March but have not been paid yet by the business.
What are Accrued expenses?
Accrued expenses are the expenses that a business has incurred during the accounting period but they have not yet been recorded in the books of accounts because the bill has not yet been received or the payment is not due yet.
The concept of Accrued expenses helps in complying with the accrual basis of accounting which says that the expense shall be recognised at the time it occurs regardless of the fact that payment is received or not.
Examples of accrued expenses are:
- The electricity bill for December is received in the month of January. However, it shall be recognised as an expense in the month of December.
- The salaries of the employees for the month of April are paid in May. However, this expense shall be recognized in April.
Key differences between outstanding expenses and accrued expenses
To summarise the above discussion, the key differences between outstanding expenses and accrued expenses are given in the table below:
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Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not on a particular period. What does trial balRead more
Definition
The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.
A trial balance is prepared on a particular date and not on a particular period.
What does trial balance include?
As in each double-entry system, each account has two aspects debit and credit.
Hence the following trial balance includes:
• Debit or credit of the reporting period.
• The amount which is to be debited or credited to each account.
• The account numbers.
• The dates of the reporting period.
• The totaled sums of debits and credits entered during that time.
When we prepare a trial balance from the given list of ledger balances, these need to be included which are as follows :
The balance of all
• Assets accounts
• Expenses accounts
• Losses
• Drawings
• Cash and bank balances
Are placed in the debit column of the trial balance.
• The balances of
• liabilities accounts
• income accounts
• profits
• capital
Are placed in the credit column of the trial balance.
Importance
As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.
The purpose of the trial balance is as follows:
• To verify the arithmetical accuracy of the ledger accounts
This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.
• To help in locating errors
There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.
• To facilitate the preparation of financial statements
A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.
Structure of trial balance
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