What Is an Accrued Expense?
An accrued expense is a cost a business has incurred but not yet paid or recorded through a supplier invoice. It's recognized as a liability at period-end so the expense lands in the period it belongs to, in line with accrual accounting.
What an accrued expense is and why it matters
Accrued expenses capture costs that have built up but haven't been billed or paid yet — wages earned but not yet run through payroll, interest owed but not due, or utilities used before the bill arrives. Recording them keeps the income statement honest: without the accrual, a period would understate its expenses and overstate profit. At the following period, when the actual payment or invoice arrives, the accrual is reversed so the cost isn't double-counted. Accrued expenses are a standard part of adjusting entries at month-end close.
A worked example
A company's employees earn $15,000 in wages during the last week of March, but payday falls on April 3. At March 31, the company records an accrued expense: debit *Wages Expense* $15,000, credit *Accrued Liabilities* $15,000. March now carries the cost it actually generated. On April 3, when wages are paid, the company clears the liability: debit *Accrued Liabilities* $15,000, credit *Cash* $15,000.
How firms handle it today
Firms identify accruals from a recurring checklist at close — payroll, interest, rent, known-but-unbilled costs — and book each as an adjusting entry, then reverse them the next period. It's repetitive and easy to miss items on.
How OCTA Flow relates to accrued expenses
OCTA Flow can maintain a standing list of recurring accruals and propose the entries (and their reversals) each period, logging them for review so nothing is forgotten between closes.
Related terms
- Accrual accounting
- Journal entry
- Liability
- Deferred revenue
- Expense
FAQ
Is an accrued expense a liability?
Yes — until it's paid, an accrued expense sits as a current liability on the balance sheet.
What's the difference between an accrued expense and accounts payable?
Accounts payable is backed by a received supplier invoice; an accrued expense is estimated and recorded before any invoice exists.
Are accrued expenses reversed?
Typically yes — the accrual is reversed the following period when the actual invoice or payment is recorded, to avoid double-counting.