Accrued Expenses

Accrued expenses are known liabilities or expenses that have been incurred and that are expected to be paid in the future. Accrued expenses are recorded by companies using an accrual basis accounting method. A small business using cash basis accounting will not need to record accrued expenses. Recording accrued expenses will help a business plan for anticipated expenses and as a result, reduce the potential of business failure due to lack of funds. Some examples of accrued expenses are taxes that are owed but have not yet been paid, accrued interest on a loan, and accrued vacation pay. Accrued payroll, including accrued bonuses, is also another type of accrued expenses that needs to be reflected on the books. Accrued expenses have to be disclosed in a company's financial records and will be reflected in a company's balance sheet.