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Why is outstanding expense an asset?

Necromancer (None) (100 Points)

13 July 2013  
1)Why is outstanding expense a liability?
2)why is prepaid expense an asset?
3)why is accrued or outstanding income an asset?
4)why is unearned income a liabilty?
 

 3 Replies

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert)   (85905 Points)
Replied 13 July 2013

1) as it needs to be paid in future thats y o/s liability.

2)as it is already paid for a service which is yet to be rec innear future.

3)as it will be recieved in near future.

4)unearned income is not liability..its o/s income recievable.

2 Like

santhosh kumar (article student) (79 Points)
Replied 14 July 2013

Outstanding liablity ,prepaid expense are the net result of Accrual based accounting system.If the enterpise follows Cash based accounting system there is no chance of OL and PE are coming in between.Since the most of the companies follows accrual based accounting we see them lot in accounting records.However following are the answers to your question.

Out standing Expense -Lets say you have taken building on rent for Rs 100000 P.A. Assume you have paid only 95000.AS per accrual based accounting Expense have to be accounted on the basis of there occurence in the reporting period.Hence we account for 100000 in p and L account .The balance Rs 5000(100000-95000) we show as payable or OL.Hence i have told you OL is Residue of Accrual based accounting system.If the company had follwed the Cash based accounting system the only expenditure which has been paid out would have been (95,000) debited to P and L and there would not have been any balance(95000-95000=0) which needs to be accounted as OL.

 

Other things can also be understood in this way.

All the best.

RAMESH CHANDRA SHARMA (munka istentisztelet) (899 Points)
Replied 18 October 2013

Originally posted by : M.com,CAFinal,CS Tushar Sampat

1) as it needs to be paid in future thats y o/s liability.

2)as it is already paid for a service which is yet to be rec innear future.

3)as it will be recieved in near future.

4)unearned income is not liability..its o/s income recievable.

  

quite right but.....point 4 UNEARNED INCOME -- UNEARNED INCOME IS A INCOME WHICH HAS BEEN RECEIVED AND NOT EARNED  ...MEANS  YET TO  EARN THE INCOME ...SO NOW AS WE HAVE RECEIVED INCOME FOR THE SERVICE WHICH WE YET TO PROVIDE SO ITS A LIABILITY....AND MS. NECROMANCER IS RIGHT ....AND UNEARNED INCOME IS A LIABILITY AND NOT A OUTSTANDING INCOME RECEIVABLE......

PLS CORRECT ME IF M WRONG...

DHANYAWAAD

 


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