Page 70 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 4: Final Accounts

The outstanding expenses at the time of preparation of final account are shown in the Notes
liability side of the balance sheet and on the other hand, it is added in the relating expenses
in the Trading and Profit & Loss Account.

Example: Rent of the office is 22,000 for 11 months only. The enterprise has failed to
remit the payment of last month's rent amounting 2,000. According to mercantile system of
accounting, the rent of the office, whether fully paid or not, should be totally considered for the
entire duration to determine the income of the enterprise.
Finally, what is to be done ? The amount of actual rent should be added with the rent which has
not been paid by the enterprise i.e. ( 22,000 + 2,000 = 24,000).
Treatment of the transaction
Debit the expense account
Credit the liability i.e. expense outstanding A/c to which the amount is to be paid.

Rent which is initially paid amounted 22,000.
The journal entry of the first transaction is:
Dec 31,2005 Rent A/c Dr 22,000
To Rent O/s A/c Cr 22,000
Being cash paid as rent

The rent which is not yet paid of 2,000 to Ganesh.
The journal entry for the outstanding rental amount is as follows:

Feb 2, 2006 Rent A/c Dr 2,000
To Rent O/s A/c 3,000
Being the rent not paid to be treated as liability

How many number of accounts got affected ?
(i) Rent A/c
(ii) Cash A/c

(iii) Liability A/c- Responsibility to pay to Rent O/s A/c
Post the journal entries, to understand the effect in the various ledger accounts of the transaction
involved.

Dr Cash A/c Cr
Date Particulars Date Particulars
Dec 31 To Balance c/d 22,000 By Rent 22,000
22,000 22,000
By Balance B/d 22,000

Dr Rent O/s A/c Cr

Date Particulars Date Particulars
To balance c/d 2,000 Dec 31 By Rent 2,000
2,000 2,000
By balance c/d 2,000

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