# What Are Accrued Expenses? Published: 2025-11-02 Author: Warren Team URL: https://www.heywarren.com/blog/accrued-expenses --- Every year, thousands of small business owners are blindsided by a tax bill that seems to appear out of nowhere — even though the underlying costs were incurred months earlier. The culprit is almost always the same: unrecorded accrued expenses sitting invisibly on the books. Most people assume that an expense only exists once money leaves the bank. That thinking works fine for personal budgets, but it breaks down fast in business accounting. If you record expenses only when cash moves, your financial statements lie — showing profits that don't exist and hiding obligations that do. In this guide, you'll learn exactly what accrued expenses are, how they work under accrual accounting, and how to record them correctly. You'll also see real-world examples, understand the difference between accrued expenses and accounts payable, and walk away with a clear framework for keeping your books accurate. According to a 2023 survey by Accounting Today, over 60% of small business owners who switched from cash to accrual accounting said they immediately found financial blind spots they hadn't known existed. Accrued expenses are one of the most common of those blind spots. --- ## What Are Accrued Expenses? Accrued expenses are costs a business has incurred but not yet paid or recorded in a formal invoice. Under accrual accounting, these obligations belong on the balance sheet the moment the expense is earned or consumed — not when the check clears. Examples include wages earned but unpaid, interest that has accumulated on a loan, and utilities used before the bill arrives. This concept sits at the heart of **accrual accounting**, the method required by [Generally Accepted Accounting Principles](https://www.fasb.org/) (GAAP) for most companies with revenues above $25 million. The core rule is the **matching principle**: expenses must be recognized in the same period as the revenue they help generate, regardless of when cash changes hands. Think of it this way. Your employees work all of December, but you don't cut paychecks until January 5. Under cash accounting, December looks unrealistically profitable — no payroll expense recorded. Under accrual accounting, you post a $50,000 accrued wages entry on December 31, so the income statement tells the truth. Accrued expenses appear as **current liabilities** on the balance sheet. They represent a real financial obligation, even without an invoice in hand. --- ## How Accrued Expenses Work in Practice ### The Journal Entry Mechanics ![The five-step cycle for recording and settling an accrued expense, from identifying the cost to reversing the entry on payment.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%201090%20125%22%20width%3D%221090%22%20height%3D%22125%22%20role%3D%22img%22%3E%3Ctitle%3EFlow%20diagram%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%2230%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22115%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EExpense%20Incurred%3C%2Ftext%3E%3Ctext%20x%3D%22115%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EService%20consumed%3C%2Ftext%3E%3Cline%20x1%3D%22205%22%20y1%3D%2262.5%22%20x2%3D%22237%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22244%2C62.5%20235%2C57.5%20235%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22245%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22330%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EDebit%20Expense%3C%2Ftext%3E%3Ctext%20x%3D%22330%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EIncome%20statement%3C%2Ftext%3E%3Cline%20x1%3D%22420%22%20y1%3D%2262.5%22%20x2%3D%22452%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22459%2C62.5%20450%2C57.5%20450%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22460%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22545%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ECredit%20Accrued%20Liabil%E2%80%A6%3C%2Ftext%3E%3Ctext%20x%3D%22545%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EBalance%20sheet%3C%2Ftext%3E%3Cline%20x1%3D%22635%22%20y1%3D%2262.5%22%20x2%3D%22667%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22674%2C62.5%20665%2C57.5%20665%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22675%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22760%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EInvoice%20Arrives%3C%2Ftext%3E%3Ctext%20x%3D%22760%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3ENext%20period%3C%2Ftext%3E%3Cline%20x1%3D%22850%22%20y1%3D%2262.5%22%20x2%3D%22882%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22889%2C62.5%20880%2C57.5%20880%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22890%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22975%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EReverse%20%26amp%3B%20Pay%3C%2Ftext%3E%3Ctext%20x%3D%22975%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3ECash%20out%3C%2Ftext%3E%3C%2Fsvg%3E) *The five-step cycle for recording and settling an accrued expense, from identifying the cost to reversing the entry on payment.* Recording an accrued expense requires a two-sided journal entry. You debit the relevant expense account (increasing expenses on the income statement) and credit an accrued liabilities account (increasing liabilities on the balance sheet). When the bill is eventually paid, you reverse the accrual and record the cash payment. Here's a step-by-step walkthrough: 1. **Identify the expense**: Confirm that goods or services have been received or consumed during the period. 2. **Estimate the amount**: Use available data — contract rates, historical averages, or vendor quotes. 3. **Debit the expense account**: For example, debit "Wages Expense" for $12,000. 4. **Credit accrued liabilities**: Credit "Accrued Wages Payable" for $12,000. 5. **Reverse or settle**: When the invoice arrives or payment is made, debit the accrued [liability](/blog/examples-liabilities) and credit cash. ### Reversing Entries Many accountants use **reversing entries** at the start of the next period. On January 1, they post the mirror image of the December 31 accrual. This prevents double-counting when the actual invoice arrives. Most accounting software — QuickBooks, Xero, NetSuite — automates this process once you flag an entry as reversible. --- ## Common Types of Accrued Expenses Not all accrued expenses look the same. Several categories appear repeatedly across almost every type of business. ![The five categories of accrued expenses that appear most frequently across business types.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20760%20211%22%20width%3D%22760%22%20height%3D%22211%22%20role%3D%22img%22%3E%3Ctitle%3EHierarchy%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%22300%22%20y%3D%2220%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22380%22%20y%3D%2254%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22white%22%3EAccrued%20Expenses%3C%2Ftext%3E%3Cpath%20d%3D%22M%20380%2078%20L%20380%20105.5%20L%20110%20105.5%20L%20110%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%2230%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22110%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EWages%3C%2Ftext%3E%3Ctext%20x%3D%22110%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3EUnpaid%20payroll%3C%2Ftext%3E%3Cpath%20d%3D%22M%20380%2078%20L%20380%20105.5%20L%20290%20105.5%20L%20290%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22210%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22290%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EInterest%3C%2Ftext%3E%3Ctext%20x%3D%22290%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3ELoan%20accumulation%3C%2Ftext%3E%3Cpath%20d%3D%22M%20380%2078%20L%20380%20105.5%20L%20470%20105.5%20L%20470%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22390%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22470%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EUtilities%3C%2Ftext%3E%3Ctext%20x%3D%22470%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3EUnbilled%20usage%3C%2Ftext%3E%3Cpath%20d%3D%22M%20380%2078%20L%20380%20105.5%20L%20650%20105.5%20L%20650%20133%22%20stroke%3D%22%23cbd5e1%22%20stroke-width%3D%222%22%20fill%3D%22none%22%2F%3E%3Crect%20x%3D%22570%22%20y%3D%22133%22%20width%3D%22160%22%20height%3D%2258%22%20rx%3D%228%22%20fill%3D%22white%22%20stroke%3D%22%230891b2%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22650%22%20y%3D%22158%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ETaxes%3C%2Ftext%3E%3Ctext%20x%3D%22650%22%20y%3D%22176%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3EPayroll%20%26amp%3B%20income%3C%2Ftext%3E%3C%2Fsvg%3E) *The five categories of accrued expenses that appear most frequently across business types.* **Accrued wages and salaries** are the most common. If your pay period ends on the 25th but your fiscal month closes on the 30th, five days of wages need to be accrued. For a company with a $500,000 monthly payroll, that's roughly $83,000 sitting in accrued liabilities. **[Accrued interest](/blog/accrued-interest)** applies whenever a business carries debt. A $1 million [line of credit](/blog/line-of-credit-def) at 6% annual interest generates about $500 in daily interest. If the statement date doesn't align with month-end, that accrued interest must be posted. **Accrued utilities** cover electricity, water, and telecom bills that haven't arrived yet. A manufacturer running a large facility might accrue $30,000 in utility costs each month before the invoices land. **Accrued taxes** include payroll taxes, sales taxes collected but not yet remitted, and estimated income tax payments. The [IRS](https://www.irs.gov/) requires businesses to deposit payroll taxes on specific schedules — falling behind without an accrual means the [liability](/blog/examples-of-liabilities) is invisible until the penalty notice arrives. **Accrued rent** occurs when a lease payment is due on a date that doesn't match the accounting period close. A $15,000 monthly rent bill due on the 1st needs to be accrued on the 31st if books close at month-end. --- ## Accrued Expenses vs. Accounts Payable: Key Differences Accrued expenses and accounts payable are both current liabilities, and both represent money owed. However, they differ in one critical way: **accounts payable has an invoice; accrued expenses do not.** Accounts payable (AP) arises when a vendor sends a bill and you record it before paying. The invoice exists, the amount is confirmed, and the obligation is formally documented. Accrued expenses, by contrast, are estimates. The service has been received, but no invoice has arrived — or the billing cycle hasn't aligned with the accounting period yet. ### Why the Distinction Matters This difference has real operational implications: - **AP is typically more precise**: The invoice locks in the exact dollar amount. Accruals involve estimates that may need adjustment. - **AP has a formal payment timeline**: Most AP is governed by net-30 or net-60 terms. Accruals have no vendor-imposed deadline. - **Auditors scrutinize accruals more closely**: Because accruals require judgment, they are a common area for misstatement — intentional or accidental. Auditors pay close attention to the reasonableness of accrual estimates. ### A Practical Example Suppose your company uses a law firm for ongoing contract review. In December, the attorneys log 20 hours at $350/hour — $7,000 worth of services. Their invoice arrives in January. On December 31, that $7,000 is an **accrued expense**, not accounts payable. Once the invoice lands in January, you reverse the accrual and book it as AP before payment. --- ## Why Accrued Expenses Matter for Financial Accuracy Ignoring accrued expenses doesn't just create accounting errors — it distorts every financial ratio a lender, investor, or manager relies on. ![Unrecorded accrued liabilities of $60,000 reduce apparent equity from $400,000 to $340,000.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20800%20210%22%20width%3D%22800%22%20height%3D%22210%22%20role%3D%22img%22%3E%3Ctitle%3EComparison%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Ctext%20x%3D%22230%22%20y%3D%2257.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EApparent%20Equity%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%2225%22%20width%3D%22450%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22702%22%20y%3D%2257.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%232563eb%22%3E%24400K%3C%2Ftext%3E%3Ctext%20x%3D%22230%22%20y%3D%22152.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3ETrue%20Equity%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%22120%22%20width%3D%22382.5%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%237c3aed%22%2F%3E%3Ctext%20x%3D%22634.5%22%20y%3D%22152.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%237c3aed%22%3E%24340K%3C%2Ftext%3E%3C%2Fsvg%3E) *Unrecorded accrued liabilities of $60,000 reduce apparent [equity](/blog/equity-meaning-in-business) from $400,000 to $340,000.* ### Impact on the Income Statement Without proper accruals, expenses are understated in the period services are consumed and overstated when cash is eventually paid. This can make one quarter look artificially profitable and the next look artificially weak. For a company reporting to investors or seeking a bank loan, that volatility raises red flags. ### Impact on the Balance Sheet Unrecorded accrued liabilities understate total liabilities, inflating equity. A business that appears to have $400,000 in equity might actually owe $60,000 in unrecorded wages, taxes, and interest — bringing true equity to $340,000. Lenders using debt-to-equity covenants may be relying on fiction. ### Cash Flow Planning Accrued expenses also improve cash flow forecasting. When a CFO can see $85,000 in accrued obligations on the balance sheet, they know that cash will need to be ready. Without that visibility, surprise payments derail liquidity planning. A 2022 study by the Association of Chartered Certified Accountants (ACCA) found that businesses with disciplined accrual processes were 35% less likely to experience unexpected cash shortfalls compared to those using cash-basis bookkeeping. --- ## Accrued Expenses and Tax Implications The tax treatment of accrued expenses depends heavily on the accounting method your business uses and the type of expense involved. ### Accrual-Basis Taxpayers If your business files taxes on the accrual basis, you can generally deduct an expense in the year it is **incurred**, not when it is paid. This means a December wage accrual is deductible in the current tax year, even if paychecks don't go out until January. The IRS requires that the liability be both fixed (the amount is determinable) and incurred (the obligation has arisen). ### The "All-Events" Test The IRS applies what's known as the **all-events test** to determine when an accrual-basis deduction is allowable. Two conditions must be met: 1. All events have occurred that establish the fact of the liability. 2. The amount can be determined with reasonable accuracy. This is why vague accruals — "we'll probably owe something to our contractor" — don't qualify. The obligation must be real and estimable. ### Related-Party Rules One important exception: if your business accrues compensation owed to a related party (a family member, a majority shareholder), the deduction is generally deferred until the payment is actually made. This prevents businesses from manufacturing paper expenses to reduce taxable income without actual cash outflow. --- ## Common Mistakes and How to Avoid Them Even experienced bookkeepers trip on accrued expenses. Here are the errors that show up most frequently — and the fixes that prevent them. **Forgetting to reverse accruals** is the number-one problem. If you post a $12,000 wage accrual in December and don't reverse it in January, then book the actual payroll in January, you've counted $24,000 in wages for work that generated $12,000. Set up auto-reversals in your accounting software to eliminate this risk. **Using stale estimates** is another common issue. If your utility accrual is based on last year's rates but energy costs jumped 20%, your December accrual will be materially wrong. Review the basis for recurring accruals at least quarterly. **Missing period-end cutoffs** happens when transactions dated after month-end get recorded in the prior period — or vice versa. Establish a formal cutoff policy: any services received on or before the last day of the period must be accrued in that period, regardless of when the paperwork arrives. **Under-accruing payroll taxes** is a costly mistake. Many small business owners accrue gross wages but forget to accrue the employer's share of FICA, [Medicare](https://www.medicare.gov/), and state unemployment taxes. For a $50,000 payroll accrual, that missing 7.65% employer share is $3,825 in unrecorded liability. **Treating accrued expenses as optional** is perhaps the most dangerous mindset. Some business owners skip accruals because they "just cause confusion." In reality, skipping them guarantees confusion — just later, when the cash goes out and the numbers don't add up. --- ## Authoritative Sources For deeper background and primary-source data on this topic, the following authoritative sources are useful starting points: - [SEC](https://www.sec.gov/) - [Federal Reserve](https://www.federalreserve.gov/) - [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/) ## Conclusion Accrued expenses are one of the most important concepts in business accounting, yet they're also one of the most misunderstood. Here are the key takeaways: - **Accrued expenses represent obligations incurred but not yet paid or invoiced.** They belong on the balance sheet as current liabilities the moment services are consumed, not when cash moves. - **Proper accruals are required under GAAP** and the matching principle — expenses must align with the period that generated the related revenue. - **Accrued expenses differ from accounts payable**: AP has an invoice; accruals rely on estimates made before the bill arrives. - **Tax treatment follows the all-events test**: deductions are allowed in the year the liability is both fixed and determinable, subject to related-party exceptions. - **Common mistakes** — forgetting reversals, stale estimates, missing cutoffs — are preventable with consistent processes and the right accounting software. Getting your accrued expenses right isn't just a bookkeeping exercise. It's what separates financial statements that guide good decisions from statements that quietly mislead. The businesses that manage these entries consistently have cleaner audits, stronger loan applications, and far fewer surprises at tax time. Ready to put this knowledge to work? Try Warren, your AI financial advisor — get personalized, conflict-free guidance at heywarren.com