What are Accrued Expenses?
Accrued Expenses are expenses a business has incurred but has not yet paid or received an invoice for by the end of an accounting period. These are recorded as liabilities.
How Accrued Expenses Work
Expense Incurred: A service is received or benefit consumed.
Record Accrual: The estimated expense is recorded as a liability.
Payment: The business pays the expense when billed.
Example
A company uses legal services in December worth $3,000 but receives the bill in January. The expense is accrued in December.
Benefits
Matches expenses to the correct accounting period
Enhances financial accuracy
Prepares the business for future cash outflows