# Accrued Expenses

## Quick Definition

Expenses that have been incurred but not yet paid or recorded in the accounts.

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## What are Accrued Expenses?

Accrued expenses are costs you have incurred but have not yet paid or received a bill for. They represent obligations you owe at period end that have not been formally invoiced.

## Why Accrued Expenses Matter

Accrual accounting requires recording expenses when incurred, not when paid. If your team worked the last week of December but payday is January 5, those wages are an accrued expense in December.

For SaaS founders closing monthly books, common accruals include unpaid wages, unused vacation liability, interest owed, and professional service fees for work completed but not yet billed.

## Recording Accruals

At month-end, estimate accrued expenses and record them with adjusting journal entries. When the actual bill arrives, reverse the accrual and record the real expense.

### Formula

**Accrued Expense Entry:**  
Debit: Expense Account  
Credit: Accrued Expenses (Liability)

### Example

Your SaaS company at December 31:

- Employee wages earned but unpaid: $45,000
- Contractor work completed, invoice pending: $8,000
- Interest accrued on credit line: $2,000

**Total Accrued Expenses:** $55,000

This liability appears on your December balance sheet, and the expenses appear on your December income statement, even though no cash has moved.

## Related Terms

### [**Accounts Payable (AP)**]  
Money a company owes to vendors and suppliers for goods or services received but not yet paid for.

### [**Balance Sheet**]  
A financial snapshot showing what a company owns (assets), owes (liabilities), and the residual value to shareholders (equity).

### [**Cash Flow**]  
The movement of money into and out of a business, showing actual liquidity rather than accounting profit.