1
Accrued expenses are costs that have been incurred by a company during the accounting period but have not yet been paid in cash or recorded.
2
Under accrual accounting and the matching principle, expenses must be recorded in the period they occur to help generate revenues, regardless of when cash changes hands.
3
Recording an accrued expense requires a debit to an expense account and a credit to a corresponding liability account (e.g., Rent Expense and Rent Payable).
4
Failing to record accrued expenses leads to underreported expenses on the income statement and underreported liabilities on the balance sheet.
5
Common examples include salaries and wages earned by employees, accumulated loan interest, consumed unbilled utilities, and unpaid taxes.
6
If the exact amount of an expense is not known at the end of the period (such as an unreceived utility bill), the company must estimate the amount to comply with the matching principle.