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Accrued Expenses

Accrued expenses are expenses that a company has incurred but has not yet paid for, creating a liability on the balance sheet.

Accrued expenses play a significant role in accurately representing a company’s financial health and its current obligations.

Example of Accrued expenses

— Salary of employees

Companies usually record the earned wages of their employees in the accounting period when they are earned, even if they are paid in the subsequent period.

Accrued expenses may also include interest expenses, taxes, or utilities that have been consumed but not yet billed.

Importance of accounting for Accrued expenses

Accurate recording of accrued expenses is essential for a company’s financial reporting. It ensures that financial statements reflect the true cost of doing business during a particular period.

Failure to account for accrued expenses can lead to misleading financial statements, resulting in incorrect analyses and decisions by stakeholders.

Moreover, keeping an eye on accrued expenses helps in effective cash flow management, allowing businesses to plan their expenditure and avoid any sudden financial burdens.

Is accrued expense an asset?

No, an accrued expense is not considered an asset. It is recorded as a liability on the balance sheet.

Accrued expenses vs Accounts payable

AspectAccrued ExpensesAccounts Payable
DefinitionExpenses that are incurred but not yet paid forDebts that are yet to be paid for goods or services received
Timing of RecordRecorded when incurred, regardless of cash paymentRecorded when an invoice is received or a purchase is made
NatureRepresents a current liability on the balance sheetRepresents a short-term liability on the balance sheet
ExamplesAccrued interest, wages, and taxesBills from suppliers, utilities, or any outstanding payments to vendors


Knowing accrued expenses is vital for maintaining a comprehensive and accurate view of a company’s financial position. With it, businesses can maintain transparency and make informed decisions.

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Accounts Payable

Accounts Receivable

Accrued Interest

Wage Expense


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