Accrued Expenses
Expenses incurred but not yet paid or invoiced.
Definition
Accrued expenses are costs you've incurred but haven't paid yet—like employee salaries earned but not paid until next payroll, or utilities used this month but billed next month. Under accrual accounting, you record the expense when incurred, not when paid.
Accrued expenses appear as liabilities on the balance sheet. They're important for matching expenses to the period when the benefit was received, giving accurate financial statements.
Why It Matters
Accrued expenses ensure financial statements reflect true obligations. Ignoring accruals understates liabilities and overstates profit, misleading investors and lenders.
Common accrued expenses include wages payable, interest payable, and taxes owed. Tracking accruals prevents surprises when bills come due and helps with cash flow planning.
Examples
- 1
December wages earned $20,000 but paid January 5 = $20,000 accrued expense on December books.
- 2
Interest accrues daily on a loan but is billed quarterly—must accrue interest expense monthly for accurate financials.
- 3
Annual audit services used throughout the year, invoiced in December—accrue 1/12 of estimated cost each month.
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started