What Are Accrued Expenses?
Accrued expenses are costs that have been incurred but not yet paid. These are recorded in the financial statements when they are incurred, not when the cash is paid.
Key Takeaways
- Definition: Expenses that are recognized before they are paid.
- Examples: Utilities, wages, and interest expenses that have been incurred but not yet paid.
How Accrued Expenses Work
- Incurred Costs: Expenses are recognized when the obligation is incurred.
- Recording: Entered into the accounting records as a liability.
- Payment: When the payment is made, the liability is reduced.
Importance of Accrued Expenses
Recognizing accrued expenses ensures that financial statements accurately reflect the company’s liabilities and expenses, providing a true picture of financial performance and obligations.
