Outstanding expenses

The expenses incurred during a particular period but not paid are called outstanding expenses. for
example, the accounting year ends on 31st March and the wages related to march not paid till 31st
March, then these expenses which are not paid till 31st March is known as outstanding expense and it
must be taken into account in the final accounts by meaning of a journal entry

outstanding expenses are current liability for the business

Expense account A/c Dr…

To outstanding expense
Treatment in final accounts

Outstanding expenses are added to the respective expense on the debit side of trading or profit and
loss account as the case may be and amount of outstanding expenses is recorded on the liability side of
balance sheet as outstanding liabilities under current liabilities

Note : If any item of outstanding expense appears in trial balance then it should be recorded once only
and that too on the liabilities side of the balance sheet

Accrued income

 those income which are earned but not yet received are known as accrued income
 Accrued income is the current asset for the business
 Should be added to the respective income in Trading or P&L account and shown in asset side of
balance sheet

Outstanding income A/c Dr

To Income

Prepaid expense or unexpired expense or expense paid in advance

Those expenses which are relate to more than one accounting period. all the expenses paid during the
current year which relate to the next period are called prepaid expenses or an unexpired expenses or
expenses paid in advance

Prepaid Expense A/c Dr

To Expense
Treatment : Expense is deducted from the concerned expense account on debit side of Trading and P &
L account and shown in asset side of balance sheet as Current Asset

Income received in advance

any income which is received before it it is earned is known as unearned income or income received in
advance

Income A/c Dr

To income received in advance

It is deducted from the concerned income in profit and loss account and shown in the liability side of
balance sheet as current liability

Bad debts

the debts which are irrecoverable are called bad debts. if bad debts appears in trial balance and
additional further bad debts are given outside the trial balance.

in such case the further bad debts are adjusted by the entry

Bad Debt A/c Dr

To Debtor

The further bad debt added to the bad debt given in trial balance and deducted from the debtor
account

Provision for Bad Debt

 Those debts whose recovery is not certain whether they will be recovered or not

 It is anticipated loss therefore suitable provision should be made for bad and doubtful debts so
as to calculate true net profit of the business

 it is due to prudence concept

Profit and loss A/c DR

To provision for doubtful debts

Recovery of bad debts written off

Any amount which written off as bad debts if recovered must be treated as income

Journals :

Bank A/c Dr
To bad debts recovered

Bad debts recovered A/c Dr

To profit and loss account

Provision for discount on debtors

To show the closing debtor as at their realizable value provision must be made for discount on
debtors .cash discount is allowed to the debtor as an incentive for making prompt payments. this
discount is a loss to the Seller it must be provided in the current year itself

Profit and loss account A/c Dr

TO provision for discount on debtors

Provision for discount = debtors - further bad debts - new provision for doubtful debts X Rate
100

Commission to Manager on net profit

It is payable to manager in two types

Before Charging such Commision

Commission = Profit X Rate
100

After Charging such Commission

Commision =Profit X Rate

100
Single entry system or Accounting from incomplete records
system
Incomplete records system refers to any system of bookkeeping under which a complete record is not
maintained basically only two accounts are maintained cash book and personal account

Features of Incomplete records system

 Simple method
 less expensive
 less time consuming
 convenient mode
 easy to calculate profit and loss
 flexible method

Types of incomplete records system

 Pure incomplete records system (only personal accounts are kept)

 Simple incomplete records system (cash book and personal accounts are maintained)

 Quasi incomplete records system ( cash book and personal and some other subsidiary books are
maintained)

Limitations of incomplete records system

1. Arithmetical accuracy cannot be checked

2. true profit cannot be calculated

3. true financial position cannot be determined

4. there is a scope of misappropriation and fraud

5. not approved by income tax and GST authorities

6. unscientific system

Some basic formulas

Profit = closing capital - opening capital

loss = opening capital - closing capital

Closing capital + drawings = opening capital +additional capital+ profit (loss)

Two methods for calculating profit under incomplete records system

 Capital comparison method or statement of affairs method or net worth method

 Conversion method or final account method

Name of book for ascertain of

Debtor account for credit sale, closing debtor

Creditor account for credit purchase , closing Creditor

Statement of affair capital

Goods and service tax and Entries

 When sale is made the GST will be output GST

 When purchase made the GST will be charged as input GST

There are two types of sales under GST system

 Inter state subject to IGST

 Intra State( within state) subject to CGST and SGST
Calculation of GST payable or GST refundable

1. GST payable = Output GST- input GST

2. GST refundable= Input GST - output GST