Outstanding Expenses: Outstanding expenses are those expenses which have not been paid

yet, but the benefits or the services have been taken for those expenses.

Outstanding expenses are those expenses which have been incurred during the current
accounting period and are due to be paid, however, the payment is not made. Such an item is
to be treated as a payable for the business.

Examples – Outstanding salary, outstanding rent, outstanding subscription, outstanding

wages, etc. Outstanding expenses are recorded in books of finance at the end of an
accounting period to show the true numbers of a business. It is also shown on the liability
side of a balance sheet.

Company-A has a rent obligation of 10,000/month that is paid on every 10th, the company
has paid for 11 months and one month is unpaid until the end of the period. The amount for 1
month which remains unpaid is termed as “outstanding expense” for Company A. At the end
of the period, this “expense due but not paid” impacts the financials of the business. As
per accrual accounting, it is supposed to be journalized.

Prepaid Expenses: A prepaid expense is a type of asset on the balance sheet that results from
a business making advanced payments for goods or services to be received in the future.
Prepaid expenses are initially recorded as assets, but their value is expensed over time onto
the income statement. Unlike conventional expenses, the business will receive something of
value from the prepaid expense over the course of several accounting periods. For example,
assume ABC Company purchases insurance for the upcoming twelve-month period. It pays
$120,000 upfront for the insurance policy. ABC Company will initially book the full
$120,000 as a debit to prepaid insurance, an asset on the balance sheet, and a credit to cash.
Each month, an adjusting entry will be made to expense $10,000 (1/12 of the prepaid
amount) to the income statement through a credit to prepaid insurance and a debit to
insurance expense. In the twelfth month, the final $10,000 will be fully expensed and the
prepaid account will be zero.

Bad debts: A bad debt expense is recognized when a receivable is no longer collectible
because a customer is unable to fulfil their obligation to pay an outstanding debt due to
bankruptcy or other financial problems. Companies that extend credit to their customers
report bad debts as an allowance for doubtful accounts on the balance sheet, which is also
known as a provision for credit losses.

Book value vs market value: The book value of an asset is its original purchase cost,
adjusted for any subsequent changes, such as for impairment or depreciation. Market
value is the price that could be obtained by selling an asset on a competitive, open
market. There is nearly always a disparity between book value and market value, since
the first is a recorded historical cost and the second is based on the perceived supply and
demand for an asset, which can vary constantly.

For example, a company buys a machine for $100,000 and subsequently records
depreciation of $20,000 for that machine, resulting in a net book value of $80,000. If the
company were to then sell the machine at its current market price of $90,000, the
business would record a gain on the sale of $10,000.

Drawings: An entry for "owner's drawing" in the financial records of a business represents
money that a company owner has taken from the business for personal use. Owner's draws
are routine occurrences in small businesses. They don't qualify as business expenses,
however. Rather, they are distributions of company profits – much like the dividends that a
corporation would pay.

Corporate veil:

A legal concept that separates the personality of a corporation from the personalities of its

shareholders, and protects them from being personally liable for the company’s debts and
other obligations.

Lifting of Corporate veil:

At times it may happen that the corporate personality of the company is used to commit
frauds and improper or illegal acts. Since an artificial person is not capable of doing anything
illegal or fraudulent, the façade of corporate personality might have to be removed to identify
the persons who are really guilty. This is known as ‘lifting of corporate veil’.

It refers to the situation where a shareholder is held liable for its corporation’s debts despite
the rule of limited liability and/of separate personality. The veil doctrine is invoked when
shareholders blur the distinction between the corporation and the shareholders. A company or
corporation can only act through human agents that compose it. As a result, there are two
main ways through which a company becomes liable in company or corporate law: firstly,
through direct liability (for direct infringement) and secondly through secondary liability (for
acts of its human agents acting in the course of their employment).

There are two existing theories for the lifting of the corporate veil. The first is the “alter-ego”
or other self-theory, and the other is the “instrumentality” theory.

The alter-ego theory considers if there is in distinctive nature of the boundaries between the
corporation and its shareholders.

The instrumentality theory on the other hand examines the use of a corporation by its owners
in ways that benefit the owner rather than the corporation. It is up to the court to decide on
which theory to apply or make a combination of the two doctrines.