Introduction
In this article we will learn about the adjustment for 'Outstanding expenses reduced' in partnership accounts.
Please note that the adjustment will be done in a similar manner whether you are doing admission, retirement, death or change in profit ratio question. You need not understand the adjustments separately for these chapters.
Outstanding Expenses Meaning
- Outstanding expenses means expenses
- which have become due for payment but
- are not yet paid.
- These are also known as expenses payable. Lets see few examples of outstanding expenses below
- Any expenses which we pay in cash or bank, and enter in profit and loss account debit side, can become outstanding if it is not paid by its due date. Few examples are Rent, Interest, Salary, Electricity, Repairs, advertisement, insurance.
Example of Outstanding Salary
Suppose in my firm I pay salary to all employees on the last date of the month. So every month I will pay salary lets say on 30th April or 30th September or 31st January etc.
In the month of march the salary will be payable on 31st March. Suppose I do not pay salary on that date due to some reason, then it will be called outstanding salary till the date I will pay the salary.
Example of Outstanding Electricity Expenses
Suppose due date for paying electricity bill every month is 25th.
If I do not pay the bill, till that date then, it will be called outstanding electricity Expenses
How Outstanding Expenses Reduced adjustment given in the question
- Outstanding rent to be brought down by Rs 3000
- Outstanding repairs reduced by Rs 3000.
- Outstanding salary decreased by Rs 3000
- Outstanding expenses of Rs 3000 as per balance sheet will not be paid.
Please note that what whatever the language in question is, the adjustment will be done in similar manner. Let's understand how to do this adjustment.
How to do Outstanding Expenses Reduced adjustment
Next we come to adjustment for outstanding expenses.
Outstanding expense is a liability which is decreasing. Debit and Credit rules for liability will apply.
Since the liability of the firm is decreasing so there will be revaluation gain.
Outstanding Expenses Reduced Journal Entry
- Outstanding Expenses A/c Dr.. Rs 3000
- To Revaluation A/c Rs 3000
Outstanding Expenses is a liability which is decreasing, so it gets debited. In case of decrease in liabilities we have a profit, so revaluation account gets credited.
Outstanding Expenses Reduced in Revaluation Account
| Particulars | Amount | Particulars | Amount |
| By Outstanding Expense | 3000 |
Next we will discuss, how this will be shown in revaluation account.
Since there is a profit, so it will be shown on credit side of revaluation account.
Remember in examination question replace the word "expense" by the type of expense like rent, salary, etc as given in the question.
Outstanding Expenses Reduced in Partner Capital A/c
| Particulars | A | B | Particulars | A | B |
There will be no impact of outstanding expenses reduced in partner capital account as we have not passed any entry in partner capital account
Outstanding Expenses Reduced in Balance Sheet
| Liabilities | Amount | Assets | Amount |
| Outstanding Expenses | -3000 |
Next we will discuss how this will be shown in balance sheet. In the balance sheet the value of Liabilities will be decreased. In our example on the Liabilities side we will decrease outstanding expenses or expenses payable by Rs 3000. Remember in examination question replace the word "expense" by the type of expense like rent, salary, etc as given in the question.
Finally
That's all for this adjustment. Please go through below links for more partnership accounts adjustments on reconstitution.
