Costs incurred but not yet paid or billed — recorded so the period tells the truth.
Accrued expenses are costs the business has incurred but not yet paid — often not even billed for yet: wages earned by employees before payday, interest accumulating on a loan, utilities used but uninvoiced. Accrual accounting records them so each period carries its true costs.
The entry debits the expense and credits an accrued-liability account; when the payment happens later, it clears the liability rather than hitting expense a second time. Skip accruals and month-end profit swings on billing timing instead of business reality.
Payday is the 5th, but $4,000 of wages were earned by month-end. An accrual books $4,000 of wage expense into the month the work happened; the payment on the 5th settles the liability. June's P&L now tells the truth about June.
Accrual Accounting · Accounts Payable (A/P) · Journal Entry — or browse the full plain-English glossary.
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