What is an accrued expense?

An accrued expense refers to when a company makes purchases on credit and enters liabilities in its general ledger, acknowledging its obligations to its creditors. In accounting, it is an expense incurred but not yet paid. Common accrued expenses include:

What are accrued liabilities?

Accrued liabilities are entered into the financial records during one period and are typically reversed in the next when paid. This allows for the actual expense to be recorded at the accurate dollar amount when payment is made in full. Accrued liabilities only exist when using an accrual method of accounting.

What happens when something financial accrues?

When something financial accrues, it essentially builds up to be paid or received in a future period. Accrue most often refers to the concepts of accrual accounting, where there are accrued revenue sand accrued expenses. Accrued revenue is when a company has sold a product or service but has yet to be paid for it.

What is the accrual method of accounting?

The accrual method of accounting requires revenues and expenses to be recorded in the period that they are incurred, regardless of the time of payment or receiving cash. Since the accrued expenses or revenues recorded in that period may differ from the actual cash amount paid or received in the later period, the records are merely an estimate.