Small Business Terms: What Are Accrued Expenses?

by Greg DePersio

0 min read

Accrued expenses are costs that have been incurred but not yet recorded. Subsequently, these appear in the financial statements if an adjusting entry is made before their preparation. For instance, unless your payroll period happens to end at quarter or year end, you have certain expenses — such as payroll — that have accrued, even though you have not made a cash payment. You can make an adjusting entry to record the amount of payroll expense that has accrued. Another example is interest on debt which has accrued between payment periods, but has not yet been paid.

Using accrual accounting more accurately reflects the financial statements of your small business. This will allow you to better compare your income statements from one period to another. Otherwise, your expenses could be distorted by timing differences from one year to to another.

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