An accrued expense, or accrued liability, is an accounting expense that has occurred but is not yet paid for. The expense is usually not yet entered into the company's general ledger; it does not appear on its financial statements unless the company makes an adjusting entry. For example, if company ABC has $10,000 in unpaid wages at the end of its accounting period, it enters an adjusting entry and accrues this expense by debiting wage expenses and crediting payable wages.
The Difference Between Accrued Interest and Accrued Expense
Accrued interest is the amount of interest that is incurred, but not yet paid for or received. If the company is a borrower, the interest is a current liability and expense on its balance sheet and income statement, respectively. If the company is a lender, it is shown as revenue and a current asset on its income statement and balance sheet, respectively. Generally, on short-term debt, which lasts one year or less, the accrued interest is paid alongside the principle on the due date. For example, if company XYZ borrows $100,000 on June 1 of the calendar year with an annual interest rate of 5%, the company has an accrued expense of $5,000 for that year. If the accountant wants to find out how much company XYZ must accrue on December 31 of that calendar year, he or she calculates $5,000 * 7/12, or $2,916.67 for the months of June through December.
Accrued expenses generally are taxes, utilities, wages, salaries, rent, commissions and interest expenses that are owed but not yet paid for. Accrued interest is only an accrued expense, or an accrued liability, if the company is a borrower of debt. It is an asset if the company is a lender of debt.