Outstanding wages is which type of Account?

Correct option is A

Outstanding Wages refers to the wages that a company owes to its employees for work done but has not yet paid as of the accounting date. This amount represents a liability for the company and is recorded as a current liability in the books of accounts.

In accounting, accounts are classified into three types:

1. Personal Account: Deals with individuals, firms, and organizations. It includes debtors, creditors, outstanding expenses, and prepaid expenses.

2. Real Account: Deals with tangible and intangible assets such as cash, buildings, and goodwill.

3. Nominal Account: Deals with expenses, incomes, losses, and gains, such as salary, rent, and commission.

Since Outstanding Wages represents an obligation to pay wages to employees (which is a liability), it falls under the category of a Personal Account (representing a liability payable to employees).

Golden Rule of Accounting for Personal Accounts:

"Debit the receiver, Credit the giver."

• Since Outstanding Wages represents wages payable to employees, it is credited when recorded in the books.

Information Booster:

• Outstanding wages are a current liability and appear under liabilities in the Balance Sheet until paid.

• It is classified as a Representative Personal Account because it represents wages payable to multiple employees.

• The initial entry records the wages as an expense while creating a payable liability.

• When wages are paid, the liability account is debited to show settlement.

• Other similar examples: Outstanding Salaries, Outstanding Rent, Prepaid Expenses, etc.

Additional Knowledge:

1. Real Account (b) - Incorrect:

   • Real accounts are related to assets (tangible and intangible),such as Cash, Machinery, and Buildings.

   • Outstanding Wages is not an asset; it is a liability, so it does not belong to this category.

2. Nominal Account (c) - Incorrect:

   • Nominal accounts include expenses, losses, incomes, and gains (e.g., Wages, Rent, Commission).

   • Wages as an expense is a Nominal Account, but Outstanding Wages (unpaid) is a liability, making it a Personal Account.

3. Nominal and Real Account (d) - Incorrect:

   • Outstanding Wages is not a Real Account because it does not represent an asset.

   • It is not a Nominal Account because it represents a payable liability, not an expense itself.​