What are Accrued Expenses? Examples, Benefits, and How to Record Them

Key takeaways

Accrued expenses—sometimes called accrued liabilities—are expenses that were incurred in a different period than when they were paid.

• Accrued expenses can impact financial statements and cash flow, as well as provide insight into your business’s overall financial health.

• Your business may track various types of accrued expenses, including interest on loans, utility and wage expenses, taxes, and payments owed to vendors and contractors. Property and rental expenses, computer and technology costs, and office supplies also qualify as accrued expenses.

• You can record accrued expenses using spreadsheets, journals, or accounting software. 

Learn more about accrued expenses, how they differ from accounts payable and prepaid expenses, and how you can track them for your business. Afterward, build your skills in accounting with the . During this four-course beginner-friendly series, you will have an opportunity to learn how to interpret and analyze financial statements, use in-demand tools and techniques, and gain in-depth accounting knowledge.

What are accrued expenses?

Accrued expenses are expenses that a business incurs but hasn't paid yet. For example, a company might receive goods or services and pay for them at a later time. It’s a similar concept to buying something with a credit card. You receive the item immediately, but you'll pay for it later and need to account for it in your budget. 

Tracking accrued expenses, accounting for them during each reporting period, and budgeting accordingly is important for businesses because you need to have an accurate picture of where your business stands financially. In addition, these expenses can:

• Represent a liability for your company (i.e., money that you must eventually pay out)

• Have a significant impact on your financial statements

• Have an impact on cash flow

• Reflect your business's financial health

• Build up over time, including interest on a loan, rent for a property, or services rendered but not yet invoiced

• Bring greater awareness to business spending, including how much you are spending and where

Learn more:

Accrued expenses vs. accounts payable vs. prepaid expenses

While researching accrued expenses, you may come across similar terms: prepaid expenses and accounts payable. Explore the distinctions in the table below:

Accrued expenses example

You may have accrued expenses from various sources. A few examples of the accrued expenses that your company might need to track include:

• Loan interest

• Wage expenses

• Payments owed to contractors and vendors

• Government taxes

• Property rental costs

• Utility expenses

• Rent expense

• Computer equipment

• Office supplies

Build your knowledge of important accounting terms with our glossary guide:

How do you record accrued expenses? 

For businesses, it's important to keep track of accrued expenses, such as utilities, rent, or salaries. You can track expenses in the following ways:

• Accounting software: Typically lets you create an accrued expenses account that will help you keep track of how much money you owe and when the payments are due

• A spreadsheet or journal: Allows you to list all of your accrued expenses and can be helpful if you want to see a clear overview of what you owe and when the payments are due

Keep in mind: When recording accrued expenses in accounting records (known as "journal entries"), it's important to use the correct accrual date. The accrual date is generally the date that the expense is incurred (e.g., December 31st for interest expense) rather than the date it’s paid on.

Is an accrued expense a debit or credit?

An accrued expense—also called accrued liability—is an expense recognized as incurred but not yet paid. In most cases, an accrued expense is a debit to an expense account. This increases your expenses. You may also apply a credit to an accrued liabilities account, which increases your liabilities.

Advantages of the accrued expense journal entry method

An accrued expense journal is a method that use to track expenses and ensure that they’re paid promptly. Having an accrued expense journal comes with several advantages. This includes helping your business:

• Keep track of your spending.

• Budget for upcoming expenses.

• Negotiate better payment terms with suppliers.

• Track trends in their spending behavior.

• Forecast profits.

Learn about the profit and loss statement as one tool for tracking the financial health of your business in this video from the Intuit Academy Bookkeeping Professional Certificate:

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