Accrued expenses or accrued charges are current period expenses but not paid until the current period is expired. Accrued expenses are recognized in the current period as expenses but will be paid on a later date. Accrued expenses are just opposite of prepaid expenses, where expense is paid before it is recognized as an expense in the current period.
Accrued expenses are known liabilities of the business even though the payment for these expenses is delayed.
Accrued Expenses Example:
Let’s take an example of accounting fees charged by an accountant and how we can record this accrued expense in the books of an organization. The organization’s accountant charged $10000 for his work on Dec. 31st and the organization will pay to the accountant in the next year on 10th of January.
The organization must recognize and record this transaction in the current period because the services of the accountant are rendered in the current period. Therefore, Accounting FeesExpense 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
Notice that now Accounting Fees Payable A/C is debited and Cash A/C is credited to record payment for accrued accounting fees.