What is an Accrued Expense?
An accrued expense refers to any expense incurred and reported during an accounting period, but for which payment has not yet been made.
How Does an Accrued Expense Work?
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 Does an Accrued Expense Matter?
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.