What Is an Accrued Expense?
Definition, the adjusting entry, and a worked example.
Home › Accounting Glossary › Accrued Expense
| Examples | Unpaid wages, electricity used but not yet billed, interest owed |
|---|---|
| Classified as | Current liability |
| Opposite of | Prepaid expense |
Accrued expense in plain English
Costs belong to the period in which you use the service, not the period you pay for it. If employees worked in December but are paid in January, December’s accounts must still show that cost.
Worked example
At 31 December, wages of 2,000 have been earned by staff but not yet paid.
| Adjusting entry at 31 December | Debit | Credit |
|---|---|---|
| Wages expense | 2,000 | |
| Accrued wages (liability) | 2,000 |
When the wages are paid in January, debit Accrued wages 2,000 and credit Cash 2,000.
- Leaving the expense out of the period because no invoice has arrived yet.
- Charging the expense twice, once as an accrual and again when it is paid.
Frequently asked questions
What is the difference between accrued expenses and accounts payable?
Accounts payable covers supplier invoices already received. Accrued expenses are costs incurred but not yet invoiced.
Where does an accrued expense appear on the balance sheet?
Under current liabilities.
Why are accrued expenses recorded?
To match costs with the period they relate to, as required by accrual accounting.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.