Accrued Expense – Definition & Example
Accrued expense is an expense that has been incurred but has not yet been paid. Put it in simple words, payment for these expenses are done after the product or service is taken. For example, salaries & wages, interest on bank loan, income tax etc.
Contrary to prepaid expense, an accrued expense is treated as current liability (If the expense is expected to be paid with a year) and shown on liability side of a balance sheet.
These expenses are recorded for the period in which they incur and not for the period in which payment is made.
For example, company XYZ ltd paid salaries to its employees for the month of March 2017 on 3rd April 2017. The company will make a journal entry for the month of march (for which salaries were issued) and not for the month of April (in which salaries were paid).