Accrued Expenses | Definition | Example

Accrued Expenses Definition

Accrued expenses or accrued charges are the current period expenses but not paid until the current period is expired. These expenses are recognized in the current period as expenses but will be paid on a later date. Such expenses are just opposite of prepaid expenses, where the expense is paid before it is recognized as an expense in the current period. What is included in accrued expenses? Accrued expenses include taxes, wages, and interest. Hence, An accrued expense is an expense recognized in the accounting records before making payment for it. This is a current liability. Such expenses are usually periodic and shown on a company’s balance sheet.

Accrued expenses are expenses that have occurred but are not yet recorded through the normal processing of transactions. Since general ledger is not showing such expenses yet, therefore, an adjusting entry is entered before these expenses recognized on the financial statements.

Accrued expenses are liabilities of the business and financial statement also show these liabilities even though we will pay these liabilities in the future.

Accrued Expenses Example

Accrued expenses

The organization must recognize this transaction in the current period because the accounting rendered his services in the current period. Therefore, Accounting Fees Expense A/C is debited with the amount of $10000 and Accounting Fees Payable A/C is credited with the same $10000 amount. The organization will pay this accrued expense on 10th of January next year and record the payment. See the General Journal entry below

accrued expenses definition

Now Accounting Fees Payable A/C is debited and Cash A/C is credited to record payment for accrued accounting fees.

Short Questions and Answers

  • Is rent an accrued expense? Yes, rent could be an accrued expense that renter has incurred but not yet paid to the owner of the property.
  • What is the journal entry for prepaid expenses

    Journal Entry for Prepaid Expenses

    Feb 10Prepaid expenses5,000
    Cash / Bank5,000
    (Paid Rent in advance)
  • What is the difference between accounts payable and accrued expensesAccounts payable is the current liability of the company which is to be paid to its suppliers of goods or services bought on credit. Accrued expenses are the liabilities for goods received or services rendered but not yet billed.
  • Is accrued wages a debit or credit? The accrued wages is credit and its debit would be (wages) expense account. 

    Accrued Wages Journal Entry

    Feb 10Wages50,000
    Accrued Wages50,000
    (Record wages expense for the month)
  • What are accrued and prepaid expenses? Prepaid expenses are those expenditures which are paid in advance but will be expensed out in future. Prepaid expenses are recognized on the balance sheet as an asset. While accrued expenses are those liabilities which are expensed out/ used up but not yet paid for these expenses.

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