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CA Foundation · Accounting · Final Accounts of Sole Proprietors

In the trial balance of a sole proprietor, 'Outstanding Salaries' is not given, but the adjustment says salaries of Rs 15,000 for the last month are unpaid. Where will this appear in the final accounts?

Outstanding salaries are added to the salaries expense in the Profit and Loss Account because the expense belongs to the year, and the unpaid amount is shown as a current liability in the Balance Sheet since the business still owes it to employees.

  1. AAdded to salaries in the Profit and Loss Account and shown as a liability in the Balance SheetCorrect
  2. BDeducted from salaries in the Profit and Loss Account and shown as an asset in the Balance Sheet
  3. CAdded to salaries in the Profit and Loss Account and shown as an asset in the Balance Sheet
  4. DShown only in the Balance Sheet as a liability

Explanation

Under the accrual basis, expenses of the year are charged whether or not paid. The unpaid Rs 15,000 is added to salaries in the Profit and Loss Account and shown as a current liability in the Balance Sheet. Treating it as an asset is wrong because the business owes the amount.

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