Question

Zuli has not yet paid the following expenses at year end; utility 7,400 and water 5,600. prepare adjusting entries

Answer 1

Expenses which are incurred but not paid upto the end of such accounting period are referred to as outstanding expenses. Following the accrual concept of accounting, expenses must be recorded when they are incurred, rather than when they are paid. Hence, it is important to bring record such outstanding expenses into the books of accounts of the Company, without affecting the cash balance. In such cases, a new outstanding expense account is created which is then shown as a Balance Sheet of the Company (as a liability) as well as added to the total expenditure of the company, which is then shown on a total basis in the Statement of Profit and Loss.

Accordingly, the following entries shall be passed to record the given outstanding payments:

Particulars	Debit ($)	Credit ($)
Utility Expenses Account	7,400
To Outstanding Utility Expenses Account		7,400
Water Charges Account	5,600
To Outstanding Water Charges Account		5,600

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