Accruals & Timing
Accrued Expense
An expense your company has incurred but hasn't paid or recorded yet — the cost is real, the invoice isn't.
An accrued expense recognizes a cost in the period you received the benefit, even though no invoice has arrived and no cash has left. You debit the expense and credit an accrued liability, so the cost hits this month's P&L and the obligation shows up on the balance sheet until you pay it.
Accruals are the most-missed entries in a sloppy close, and they matter in both directions: forget them and you understate expenses, overstate net income, and understate liabilities — all three of which someone will eventually notice. The classic ones are payroll for days worked between month-end and payday, utilities used but not yet billed, and professional services performed but not yet invoiced.
Example
Payroll runs on the 5th, but your month ended on the 30th and three business days of salaries fall in the prior month. You accrue $9,000 of salary expense on the 30th: debit salary expense, credit accrued payroll. When payroll is actually paid on the 5th, the accrual unwinds and the cash side settles.
Common questions
What is the difference between an accrued expense and a prepaid expense?
Opposite timing. An accrued expense is incurred before it's paid (you have the cost, not the bill). A prepaid expense is paid before it's used (you have the bill, not the cost). One starts as a liability, the other as an asset.
How do accrued expenses get cleared?
When the real invoice or payment arrives, you reverse or settle the accrual and record the actual transaction. Done correctly, the accrual and its reversal wash out, and the expense lands once — in the right period.
Practice this in the game
Accrual World turns concepts like these into playable drills. Pick the account, pick debit or credit, and get instant feedback. Free, no signup.
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