Accrued Expense
Expenditures recognized on the balance sheet of a company after liability is incurred before payment is made is known as accrued expenses.
Updated: October 4, 2023
The act of recording payments that haven't been made yet on a balance sheet is known as Accrued Expense. Expenditures recognized on the balance sheet of a company after liability is incurred before payment is made is known as accrued expenses, or accrued liabilities. These expenses are recorded on a balance sheet of companies to gauge their financial statements more accurately and streamline financial management with accounting software.
Future payments and liabilities are represented by accrued expenses. Although, accrued expenses are generally recorded as current liabilities on a balance sheet, but they can be an estimate of a future supply of goods or services in certain situations. The costs are accrued until they are settled, and can be in the form of salary, tax or interest. Salaries are recorded as 'accruals' in the previous month since most companies pay employees in the first few weeks of the month. Taxes are accrued for twelve months as it is paid by the company toward the end of a fiscal year. The interest payments accrue until the time of payment if companies have taken out loans.
Accrued expenses provides a complete financial picture, preferred by stakeholders, is a better method for budgeting and is GAAP-compliant which are some of the benefits of it.
