Accrued expenses

Meaning

Accrued expenses (المصروفات المستحقة) are the costs of a period that no invoice has yet arrived for: the electricity used in October and billed in November, the audit fee for the year, bonuses earned but paid later, interest building on a loan. The accrual basis of accounting, which IFRS and ZATCA both require of companies, records the cost when it is incurred, so a month-end journal debits the expense and credits accrued liabilities; when the bill comes, the accrual is reversed against it.

Their mirror is the prepaid expense: rent or insurance paid in advance, held as an asset and released month by month. Both are what separate a cash ledger from a set of accounts, and both are among the first entries an auditor tests at year end.

Also called: accruals · accrued liabilities · المصروفات المستحقة

Example

Al Noor's October electricity bill will arrive in mid-November for about 3,200.00. On 31 October the accountant debits Utilities 3,200.00 and credits Accrued Expenses 3,200.00; when the bill arrives at 3,260.00 the accrual is reversed and the invoice booked, leaving 60.00 in November.