What it is:
An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made.
How it works (Example):
There are certain expenses which a company may incur over the course of an accounting period (usually a quarter), but which may not actually be paid until a later time. Such expenses are accounted for as short-term liabilities on a company's balance sheet and may include utilities, wages and salaries, rents, and periodic interest on outstanding loans.
Why it Matters:
Though they are not yet paid, accrued expenses are reflected on the balance sheet for the period during which they are incurred. This is because they were accrued by a company's revenue-generating operations during a given period. Once paid, the accrued expenses are removed from the balance sheet.