What will be the accounting treatment of outstanding expenses in the…

What will be the accounting treatment of outstanding expenses in the income and Expenditure A/c.

(A) Added in main or concerned head

(B) Subtracted from main head

(D) Will not be shown in Income and Expenditure A/c

(E) Shown in Receipt and Payment A/c only

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A) and (C) Only

The Income and Expenditure Account is prepared on the accrual basis, so it shows the full expense of the year whether or not it has been paid. The unpaid part is a debt of the organisation at the year end.

(A) Added in main or concerned head — True. The outstanding amount is added to the amount paid under that expense head.

(B) Subtracted from main head — False. Subtracting would show less than the expense of the year.

(C) Shown in Balance-Sheet as Liability — True. The amount still to be paid is a current liability.

(D) Will not be shown in Income and Expenditure A/c — False. It must be included because it is an expense of the current year.

(E) Shown in Receipt and Payment A/c only — False. The Receipt and Payment Account shows only cash paid, never amounts outstanding.

Note: This question is from the pre-rationalised NCERT book. The topic is not there in the latest NCERT book (2026-27), but it is still in the CUET 2026 syllabus, so do not skip it.

NCERT (Pre-rationalised edition):
Steps in the Preparation of Income and Expenditure Account – “… 5. Take the revenue expenses to the expenditure side of the Income and Expenditure Account with due adjustments as per the additional information provided relating to the amounts received in advance and those not yet received.”

NCERT (Pre-rationalised edition):
Preparation of Balance Sheet – “… 4. Similarly compare, items on the payments side of the Receipt and Payment Account with expenditure side of the Income and Expenditure Account. This is to ascertain the amounts if: (a) outstanding expenses; (b) prepaid expenses; (c) purchase of a fixed asset during the year; (d) depreciation on fixed assets; (e) stock of consumable items like stationery in hand; (f) Closing balance of cash in hand and cash at bank as, and so on.”

NCERT (Pre-rationalised edition):
Salient Features – “… 5. No non-cash items such as depreciation outstanding expenses accrued income, etc. are shown in this account.”

NCERT (Pre-rationalised edition):
Balance Sheet

Extract from the NCERT textbook