Adjustments in Preparation of Financial Statements — Account STD 11 Commerce — Question

Expenses which have been incurred during the year, but have not been paid yet are called Outstanding Expenses. At the end of the accounting year such expenses are accounted in the books, otherwise profit will be overstated and liabilities will be understated. These expenses may be for wages, salaries, rent, interest, etc. Outstanding Expenses are shown on the debit side of the Trading and Profit and Loss Account by adding to existing amount of expense under that head and as liabilities in the Balance Sheet under current liabilities. The adjusting entry is: