Question

What is the effect of outstanding expenses on the accounting equation?

Answer 1

Answer:

As we know, in accounting and book-keeping, expenses are debited in order to cause a decrease in the owner's (or stockholders') equity. So in this case, we record outstanding expense as:

ASSETS = LIABILITES + CAPITAL

Nil = +(outst. expense) - (outstanding expense)

Outstanding Expenses are added to Liabilities because it is business' CURRENT LIABILITY and deducted from CAPITAL because it causes a decrease in owner's equity.

NOTE: At the time of payment we deduct it from Liabilities as well as from Cash ( or in JOURNAL ENTRY: we debit Outstanding Expense and credit Cash)

ASSETS = LIABILITES + CAPITAL

-outst. exp. = -outst. exp. + Nil

I hope this will be helpful for you.

All the best.

If it is helpful mark me as the brainalist .