Accrued Expenses
Accrued expenses are costs your business has incurred but hasn't paid for yet — and hasn't received a bill for either. They're different from accounts payable because with AP, you have an invoice in hand. With accrued expenses, you know the expense exists, but the bill hasn't arrived. They show up a
Accrued Expenses Definition
Accrued expenses are costs your business has incurred but hasn't paid for yet — and hasn't received a bill for either. They're different from accounts payable because with AP, you have an invoice in hand. With accrued expenses, you know the expense exists, but the bill hasn't arrived. They show up as current liabilities on your balance sheet.
Accrued Expenses in Practice — Example
You run a small e-commerce business with two employees. Their pay period ends on March 28th, but payday isn't until April 3rd. Those wages from March 28th through March 31st are accrued expenses — your employees earned the money in March, but you won't pay it until April. To keep your March books accurate, you record an adjusting entry debiting wage expense and crediting accrued wages (a liability). When you pay on April 3rd, you reverse the accrual.
Why Accrued Expenses Matters for Your Books
Accrued expenses ensure your financial statements reflect reality. Without them, your P&L understates expenses in the month they occur and overstates them in the month you pay. This distorts profitability and makes month-over-month comparisons meaningless.
This is especially important at year-end. If you incurred significant expenses in December but don't pay until January, failing to accrue them means your annual profit is overstated — and your taxes might be too. Proper accruals keep your tax reporting aligned with economic reality.
For businesses seeking loans or investment, clean accruals show financial sophistication. Bankers and investors want to see that your books reflect true obligations, not just what's been billed.
How Accrued Expenses Shows Up in QuickBooks
In QBO, accrued expenses are typically recorded via journal entries (New → Journal Entry). Debit the expense account and credit an accrued liability account (you may need to create one under Other Current Liabilities). At the start of the next period, reverse the entry. You'll see accrued expenses on the Balance Sheet report under Current Liabilities. QBO doesn't automate accruals, so this requires manual entries or a bookkeeper handling month-end close.
Common Mistakes
FAQ
Q: What are common examples of accrued expenses? A: Wages earned but not yet paid, interest on loans between payment dates, utilities used but not yet billed, and taxes incurred but not yet due.
Q: Do I need to track accrued expenses on cash basis? A: No. Cash basis only records expenses when paid. Accrued expenses are an accrual-basis concept.
Related Terms
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Related Terms
The general ledger (GL) is the master record of all financial transactions organized by account. Every debit and credit from the general journal and specialized journals ultimately lands in the general ledger. It's the backbone of your accounting system and the source from which all financial statem
A profit and loss statement (P&L), also called an income statement, summarizes your business's revenues, costs, and expenses over a specific period. The bottom line shows whether you made a profit (revenue exceeded expenses) or took a loss (expenses exceeded revenue). It's one of the three core fina
Bill payment in bookkeeping refers to the process of paying a vendor bill that's already been recorded in your accounting system. It's a two-step process: first you enter the bill (creating an accounts payable liability), then you pay it (reducing AP and cash). This separation is key for accrual bas
Net income is the total profit remaining after all expenses, taxes, and interest have been subtracted from revenue. It's the "bottom line" of the income statement and shows whether the business made money or lost money during the period. Net income flows to the Balance Sheet as retained earnings and
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