Accrued expenses.
In plain English
Accrued expenses are obligations for goods or services already received where the invoice has not arrived or the payment date has not come, recognized now rather than when the cash moves. Common examples are wages earned since the last payday, interest building on a loan, utilities used but unbilled, and taxes owed. The entry raises an expense on the income statement and a liability on the balance sheet at the same moment. When the cash finally goes out it clears the liability and does not touch profit again. Accruals are a main reason accrual-basis profit can differ sharply from the bank balance.
01Why it matters
Accrued expenses are bills already earned by someone else that have not hit your account yet, so ignoring them makes a month look more profitable than it actually was.
02The math, step by step
Say payday falls on the 5th and employees earn 3,000 dollars a day. At month end, five days of work is unpaid. The company accrues 15,000 dollars of wage expense in that month (3,000 times 5) and a 15,000 dollar liability. Paying it next month clears the liability only.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Accounts payable covers amounts with an invoice in hand and a known figure. Accrued expenses cover costs incurred where no invoice has arrived and the amount is often estimated. Both are current liabilities, but only one is waiting on a document.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice