Accrued Expenses: Definition, Journal Entry & Examples

A business can incur an expense before the invoice ever reaches accounting. Employees have already worked, cloud infrastructure has already been used, or a consultant has already delivered the work, but the bill may not arrive until later.

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Under accrual accounting, those costs still belong in the period when they were incurred. They are recorded as accrued expenses, with a corresponding liability for the amount the business expects to pay.

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This guide explains how accrued expenses work, how to record and reverse them, and how to reconcile them at month-end.

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[tldr]

What are accrued expenses?

An accrued expense is a cost a business has already incurred but has not yet recorded through the normal invoice or payment process.

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The expense belongs in the current accounting period because the business has already received the related goods or services. If the invoice has not arrived by period-end, finance records an estimate and creates a liability for the amount owed.

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For example, a company may use $30,000 of cloud infrastructure in September but receive the invoice in October. Under accrual accounting, the $30,000 belongs in September's results.

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The entry increases both the relevant expense and an accrued liability.

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Strictly, the accrued expense is the cost recognized on the income statement, and the accrued liability is the amount owed on the balance sheet. In practice the terms are used interchangeably, and many balance sheets label the liability itself "accrued expenses." Accrued liabilities can also include obligations beyond operating expenses, such as accrued interest or taxes.

Where accrued expenses appear in the financial statements

Accrued expenses affect the financial statements before any cash changes hands.

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Statement	Treatment
Balance sheet	The unpaid amount appears as a liability, usually current when it is expected to be settled within one year (or the operating cycle, if longer)
Income statement	The expense is recognized in the period the business receives the related benefit
Cash flow statement	Recording the accrual does not itself move cash; under the indirect method, changes in operating accrued liabilities affect operating cash flow through working capital

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Once the invoice is recorded and ultimately paid, the liability is cleared and cash decreases.

Common examples of accrued expenses

Accruals often appear wherever the business receives a service before the final bill reaches accounting.

Expense	Why an accrual arises	How finance may estimate it	What to watch
Payroll	Employees have worked through period-end but have not yet been paid	Days or hours worked and payroll data	Pay periods rarely line up exactly with month-end
Bonuses	Employees have earned part of an incentive that will be paid later	Compensation plan and performance data	Estimates may change as performance develops
Interest	Interest has accumulated between payment dates	Principal, interest rate, and elapsed time	Separate accrued interest from principal balances
Utilities	Service has been consumed but the bill has not arrived	Usage, rates, or historical bills	Seasonal changes can make historical averages unreliable
Professional services	Legal, audit, or consulting work has been performed but not invoiced	Hours, engagement terms, milestones, or vendor estimates	Legal service fees are different from legal loss contingencies
Cloud and hosting	Infrastructure has been consumed before the provider bills	Usage dashboards and provider data	Costs can move materially with usage
Contractors	Work has been completed before the contractor submits an invoice	Approved hours, milestones, or contract rates	Confirm the work belongs to the period being closed
Employer payroll taxes	Payroll-related tax cost has been incurred but remains unpaid	Payroll records and applicable rates	Taxes withheld from employees’ pay are a liability but not an employer expense; only the employer’s share is expensed

Accrued expenses vs. accounts payable vs. prepaid expenses

Whether a cost belongs in accrued expenses, accounts payable, or prepaids comes down to three things: has the business received the benefit, has the invoice arrived, and has the company paid?

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If the benefit has been received but the invoice has not arrived, the cost may need to be accrued. Once the invoice is received and recorded, the unpaid balance normally moves through accounts payable. If the company pays before receiving the benefit, the unused amount is generally recorded as a prepaid expense.

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Situation	Typical treatment
Benefit received, invoice not yet received	Accrued expense
Benefit received, invoice received but unpaid	Accounts payable
Benefit received and already paid	Expense; no remaining accrual or AP
Cash paid before future benefit is received	Prepaid expense

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The balance-sheet treatment also differs:

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Criteria	Accrued expense	Accounts payable	Prepaid expense
Benefit received?	Yes	Yes	Not fully
Invoice received?	Usually no	Yes	May or may not have arrived
Cash paid?	Usually no	No	Yes
Balance-sheet classification	Liability	Liability	Asset
Amount	May be estimated	Usually supported by an invoice	Usually known from the payment

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The difference matters because the same transaction can move through more than one of these accounts over time.

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An annual software contract paid before service begins may start as a prepaid expense. Professional services received before an invoice arrives may begin as an accrual before moving into AP when the invoice is recorded.

How to record an accrued expense journal entry

Suppose a SaaS company is closing September. Its cloud provider has not sent the September invoice yet, but the usage dashboard shows approximately $30,000 of infrastructure costs for the month. The actual invoice arrives in October for $31,200.

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Here's how that can move through the books.

1. Record the accrual at month-end

On September 30:

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Account	Debit	Credit
Hosting expense	$30,000
Accrued liabilities		$30,000

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The company recognizes the hosting cost in September because that is when it consumed the infrastructure.

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The credit records the obligation until the actual vendor bill reaches the accounting system.

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This is an adjusting journal entry, since it brings the ledger in line with activity that occurred during the period but had not yet been captured through the normal transaction flow.

2. Reverse the accrual in the next period

Some companies automatically reverse short-term accruals on the first day of the following period.

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Account	Debit	Credit
Accrued liabilities	$30,000
Hosting expense		$30,000

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The reversal clears the liability and creates a temporary credit to hosting expense.

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That allows the eventual vendor invoice to run through the normal AP workflow without someone having to manually remove the original $30,000 from the expense account.

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A reversing entry is a common accounting workflow, not a requirement for every accrual. The company can also clear the existing liability directly when the invoice arrives.

3. Record the actual invoice

The October invoice arrives for $31,200.

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If the accrual has already reversed:

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Account	Debit	Credit
Hosting expense	$31,200
Accounts payable		$31,200

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The October reversal credited hosting expense by $30,000, while the invoice debits it by $31,200.

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The net October expense from the two entries is therefore $1,200.

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That $1,200 is the true-up between the original estimate and the actual invoice. If September is already closed, it carries the estimated $30,000 cost and October captures the $1,200 true-up once finance knows the final amount; a revision to a reasonable estimate is a change in accounting estimate, which ASC 250 recognizes in the period of change rather than by restating the prior period.

What if you do not reverse the accrual?

The invoice can instead be booked directly against the existing liability:

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Account	Debit	Credit
Accrued liabilities	$30,000
Hosting expense	$1,200
Accounts payable		$31,200

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The $30,000 accrual is cleared, the additional $1,200 hits expense, and the full $31,200 invoice moves into accounts payable. Both methods can produce the correct result.

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Automatic reversal is useful when the invoice will normally enter AP and hit the expense account automatically. Direct clearing can work when the AP process reliably matches invoices to existing accruals.

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Whichever approach a company uses, the control is the same: the original expense should not be recognized twice.

What can go wrong with accrued expenses?

Accruals depend on estimates and entries that later have to interact with actual invoices. That creates several ways for balances to drift.

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Problem	What happens
Expense is never accrued	Current-period expense and liabilities are understated
Same expense is accrued twice	Expense and liabilities are overstated
Accrual reverses but the invoice does not arrive	Expense can be temporarily understated in the following period
Invoice posts without the accrual being reversed or cleared	The same expense may be recognized twice
Estimate differs significantly from the actual invoice	A large true-up hits a later period
Old accrual is never reviewed	A liability can remain on the balance sheet after it is no longer needed

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A large true-up is not automatically a problem. Accruals are estimates, so some difference is expected.

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Repeated large differences, however, may show that the estimation method needs work. A cloud accrual based on last month's invoice, for example, may perform poorly if usage is growing quickly.

How to manage accrued expenses at month-end

Finance cannot accrue a cost it does not know exists. That makes accrual management part of the broader month-end close process.

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Teams need a repeatable way to find costs that belong in the period but have not yet made it through AP. A typical process looks like this:

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Set the cutoff and materiality policy. Decide which period costs belong to and which items are material enough to accrue under the company's accounting policy.
Look for unrecorded obligations. Review open purchase orders and receiving records, vendor contracts, payroll cutoff, contractor hours, professional services, bonus and commission plans, cloud usage, recurring costs, and known invoices still outside AP.
Estimate the amount. Use the strongest available support, whether that's contractual rates, usage data, approved hours, historical invoices, payroll records, milestones, or confirmation from the vendor.
Document and post the accrual. Record the calculation and basis for the estimate, then debit the relevant expense or other account and credit the accrued liability.
Reverse or clear it appropriately. Determine how the eventual invoice will interact with the accrual so the original expense is not recognized twice.
True up the estimate. Compare the accrual with the actual invoice and record any difference.
Reconcile the balance. Maintain supporting detail for material accruals and tie the schedule back to the accrued-liability accounts in the GL as part of the account reconciliation.

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The supporting schedule should make it possible to see what each material accrual relates to, which period it belongs to, how the amount was estimated, and when finance expects it to clear.

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Accruals that remain open well beyond the expected invoice date deserve another look. The vendor may have billed under a different amount, the expense may already have entered AP elsewhere, or the underlying obligation may no longer exist.

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One nuance is goods received but not invoiced, often called GRNI. Receiving something before the supplier invoice arrives can create an unrecorded liability, but the debit is not always an expense. If the company received inventory that remains on hand, for example, the other side may be inventory rather than an expense account.

Automate accrued expense accounting with DualEntry

As accrual volume grows, finance teams have more recurring entries, reversals, approvals, supporting detail, and reconciliations to manage each month.

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DualEntry's prepaid and accrual accounting software brings that work into the ERP. With DualEntry, finance teams can:

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Start accruals from templates: accrual templates prefill the entry, and recurring journal entries generate drafts on a schedule by default, so each one can be reviewed before it posts.
Schedule automatic reversals: set a reversal date, typically the first day of the next period, and DualEntry immediately creates the paired reversing entry dated that day.
Apply approval workflows to journal entries, so an entry that matches a workflow stays in draft with no GL impact until every stage approves.
Reconcile accrued-liability accounts in the same ledger as the entries that created and reversed them.
Work across entities and dimensions by tagging journal entry lines with classifications such as department, location, and project, and using intercompany journal entries when a transaction spans entities.

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The result is less manual work carrying accruals through each close and a clearer trail from the original estimate to the entries that eventually clear it.

Accrued Expenses FAQs

How do you record an accrued expense?

Debit the relevant expense account and credit an accrued-liability account. For example, if a company has received $10,000 of consulting services that have not yet been invoiced, it could debit consulting expense for $10,000 and credit accrued liabilities for $10,000.

Are accrued expenses considered assets or liabilities?

Accrued expenses create liabilities because the company has already incurred a cost that it still owes. Routine operating accruals are generally current liabilities because they are expected to be settled within one year (or the operating cycle, if longer).

What is a journal entry for accrued expenses?

The standard entry is a debit to the relevant expense and a credit to accrued liabilities. The entry recognizes the cost before the related invoice or payment has been processed.

What are accrued costs?

Accrued costs are costs a business has incurred but has not yet paid or fully recorded through the normal invoice process. In this context, the term is generally used in the same way as accrued expenses.

Do you always reverse an accrued expense?

No. Companies often use reversing entries to simplify invoice processing in the next period, but an accrual can also remain until the actual invoice arrives and then be cleared directly against the accrued liability.

What happens if you forget to accrue an expense?

Expenses and liabilities may be understated in the period when the cost was incurred, which can overstate profit. When the invoice is eventually recorded in a later period, that later period may then carry an expense that economically belonged to the earlier one.