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An accrued expense is an expense recognized before the related payment. Alder Services' employees complete $2,700 of December work that will be paid in January. The work has not been recorded. Assume all of it is a December operating expense rather than a cost included in another asset.
Record December's expense
The entry increases expense and liabilities. It reduces December income but does not change Cash. The unpaid obligation exists even though payment is later.
Settle the payable in January
The payment settles the recorded debt. Debiting Wages Expense again would count December's services twice.
Some accruals use exact records; others need estimates. In either case, use evidence about the services and period, not a desired income amount. Not every payable represents expense: borrowing cash creates a liability without creating expense for the borrowed principal.
Build the evidence file
Identify the service or resource received, the dates it was used, the person or entity owed, and the amount or estimation method. Then compare that evidence with the unadjusted ledger. An invoice received after year-end can support the amount without moving the expense into the later period.
Follow the two-accrual example to see the adjustment in an adjusted trial balance. Then use the independent accrual practice to prepare a different pair of entries.
Boundaries
This page covers an ordinary employee-service accrual with a known amount. It does not decide whether a cost belongs in inventory or another asset, estimate an uncertain obligation, or apply payroll-tax and compensated-absence rules.
Put the concept to work
Understand this concept
- Explain how current-period consumption or service receipt can create expense and a payable before invoice receipt or payment.
Apply this concept
- Prepare a basic accrued-expense adjustment and explain the later payment without recognizing the same expense twice.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Accrual-basis accounting — Understand
To understand this concept: Required. Recognition precedes settlement because the consumption or obligation belongs in the current period.
- Accrued expense — Understand
To apply this concept: Required. The entry must follow the consumption and obligation analysis.
- Adjusting entry — Apply
To apply this concept: Required. The supported period-end difference is recorded and posted through an adjusting entry.
Show 2 more prerequisites
- Expense — Understand
To understand this concept: Required. The learner must distinguish current-period consumption from cash payment.
- Liability — Understand
To understand this concept: Required. The counterpart represents the unsettled obligation created by the received service or other current-period fact.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
More specific topics
Related concepts
Use this idea next
- Accounts payable — Understand
Required level here: understand. Helpful. Both concepts separate an operating cost or receipt from later settlement, though their documentation and timing can differ.
- Accrued bond interest — Apply
Required level here: apply. Required. Interest incurred before payment is an accrual with its own cutoff.
- Accrued expense — Apply
Required level here: understand. Required. The entry must follow the consumption and obligation analysis.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.