Accrued Expenses

Costs incurred but not yet paid by the end of an accounting period.

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Accrued expenses are costs that a business has incurred within an accounting period but hasn't yet paid by the time the period closes. They are recorded as a liability on the balance sheet and are a direct result of accrual accounting — ensuring expenses are matched to the period in which they occur.

In depth

Accrued expenses exist because of a simple timing problem: work happens, services are consumed, and obligations are created long before invoices arrive or payments are made. Under accrual accounting, a business cannot wait for the cash to move before recognizing a cost. The expense must be recorded in the period it was incurred, regardless of when the bill arrives or when the payment goes out. This is what keeps financial statements honest and reflective of what actually happened during a given period.

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The mechanics work through adjusting entries made at the close of each accounting period. The finance team reviews all costs incurred but not yet invoiced or paid, estimates the amounts where necessary, and records them as liabilities on the balance sheet. Common examples include wages earned by employees in the final days of a month that won't be paid until the following payroll cycle, interest accumulating on a loan between billing dates, and utility or professional service costs that have been consumed but not yet billed.