Question

Analyze, comprehend, and evaluate the following statements and write TRUE if the statement is correct and FALSE if it is wrong.

Unpaid utility bills when not adjusted will understate liability account and overstate the net income (T/F)

Answer 1

ANSWER: TRUE

Outstanding expenses are those expenses which are due in the current accounting period but are left unpaid.

The benefits os such expenses have been consumed although due to some reason they are not paid untill the end of the accounting period. Below is the journal entry for outstanding expenses.

Accounting entry for outstanding expenses,

Expenses A/C Dr.

To Outstanding Expenses A/C

They are an obligation for the business and therefore treated as a liability.The accounting rule applied is "CREDIT THE INCREASE IN LIABLILITY" and "DEBIT THE INCREASE IN EXPENSES"