---
title: "Accrued expenses: Definition, examples, and journal entry"
description: "Accrued expenses defined, with examples, the journal entry and reversal, how they differ from accounts payable, and a month-end accrual schedule."
url: https://emptyspaces.ai/resources/blog/accrued-expenses
language: en
---

[Blog](https://emptyspaces.ai/resources/blog) Glossary

# Accrued expenses: Definition, examples, and journal entry

Published October 18, 2026 10 min read

Key takeaways

- Accrued expenses are costs your company has incurred but hasn't been billed for or paid by the end of the period, and they sit on the balance sheet as a current liability until reversed, reclassified to AP, or paid.
- In the worked example below, a software company with about $80 million in revenue accrues $814,000 across six October costs, then finds $7,590 of differences when the November invoices arrive.
- No accounting standard sets a dollar threshold for booking an accrual, and the SEC staff warns that relying only on a numerical threshold to judge materiality “has no basis in the accounting literature or the law.”

Accrued expenses are costs your company has incurred but hasn't been invoiced for or paid by the end of the period, such as wages earned but not yet paid. Getting accrued expenses right gives you a true monthly income statement, catches liabilities before your auditors do, and keeps last month's bills out of next month's results. This guide covers the definition, the journal entry, accrued expenses vs accounts payable, estimating without an invoice, and one company's accrual schedule.

## What are accrued expenses?

Accrued expenses are costs recognized in the month they're incurred, before the vendor bills you, with a debit to expense and a credit to a liability. Recognizing them on time keeps each month's costs in the month that used the goods or services.

- **Accrued expense** A cost you've incurred, such as consulting work done in October, that hasn't been invoiced or paid at month-end
- **Accrued liability** The balance sheet account that holds those unpaid costs, and another common name for accrued expenses
- **Accrual** The month-end journal entry that records the expense and the liability

Accrued expenses are one of the two types of accruals. The other is accrued revenue, which records revenue you've earned but haven't billed.

## Is an accrued expense an asset or a liability?

An accrued expense is a liability, and because it's normally paid within a year, it's a current liability. Knowing where it sits tells you how to record it and where to look for it on the balance sheet.

Accrued expenses carry a credit balance and appear on the balance sheet under current liabilities, often as “accrued liabilities” or “accrued expenses.” The other side of the entry is an expense on the income statement, so an accrual lowers the month's profit and raises its liabilities by the same amount. Cash doesn't move until the bill is paid.

## What are examples of accrued expenses?

Typical accrued expenses at a mid-sized company include wages, usage-based services, and professional fees that cross a month-end before they're billed. Listing your recurring ones helps your team check each of them every month instead of relying on memory.

| Accrued expense | Why it's unbilled at month-end | Usual basis for the amount |
| -------------------------------------- | ------------------------------------ | ------------------------------------- |
| Salaries and wages | Pay period ends after the month ends | Payroll calendar and register |
| Bonuses and commissions | Earned through the year, paid later | Compensation plan and results to date |
| Cloud hosting and usage-based software | Billed after the usage month | Provider's usage console |
| Legal, audit, and consulting fees | Firms bill after the work | Vendor confirmation or hours × rate |
| Contractors and staffing agencies | Timesheets billed weekly or monthly | Approved hours × contract rate |
| Utilities | Billing cycle ends after month-end | Average of recent bills |
| Interest on debt | Paid quarterly or at maturity | Principal × rate × days |

Payroll taxes, employee benefits, and paid time off are accrued on the same basis as the wages behind them.

## What is the journal entry for accrued expenses?

The journal entry for an accrued expense debits the expense account and credits accrued liabilities at month-end. Following it through to the invoice shows how a reversal on day one keeps the cost from being counted twice.

Example

Your outside counsel completes $46,000 of work in October, and the invoice arrives on November 9.

| Account | Debit | Credit |
| ------------------- | ------- | ------- |
| Oct 31 | | |
| Legal fees expense | $46,000 | |
| Accrued liabilities | | $46,000 |
| Nov 1 | | |
| Accrued liabilities | $46,000 | |
| Legal fees expense | | $46,000 |
| Nov 9 | | |
| Legal fees expense | $46,000 | |
| Accounts payable | | $46,000 |

October carries the $46,000 expense. In November, the reversal and the invoice net to zero, and the liability moves from accrued liabilities to accounts payable until you pay it. ERPs such as NetSuite let you set a reversal date on the original entry, so the November 1 entry posts automatically.

An illustration of journal entry RB-8D14A2, prepared by the Close Agent: a $46,000.00 October legal fees accrual, debit 62100 and credit 21500, reversing on November 1, with the accrual schedule attached, waiting on the Controller's approval. Demo data.

For payroll, prepaid, and other month-end entries, see [Month-end journal entries: Examples and what to review](https://emptyspaces.ai/resources/blog/month-end-journal-entries).

## What is the difference between accrued expenses and accounts payable?

Accrued expenses are costs you've incurred but haven't been billed for, while accounts payable are costs you've been billed for but haven't paid. Both are current liabilities, but the invoice changes how the amount is supported and where it's recorded.

| Compared | Accrued expenses | Accounts payable | Prepaid expenses |
| ----------------- | -------------------------------------------- | --------------------------- | ----------------------------- |
| Invoice received? | No | Yes | Paid in advance |
| Amount | Estimated or calculated | Exact, from the bill | Exact, from the payment |
| Balance sheet | Current liability | Current liability | Current asset |
| Recorded by | Month-end journal entry | AP when the bill is entered | Payment, then monthly release |
| Clears when | Reversal, reclassification to AP, or payment | You pay the vendor | The service period passes |

Goods received but not invoiced sit between the two. If your ERP posts an accrual when a purchase order is received, that receipt already records the liability, so don't accrue it again by journal entry.

## How do you estimate an accrued expense without an invoice?

You estimate an accrued expense from the best evidence you have at month-end: the vendor's figure, a contract or PO rate, usage data, or recent bills. Finding the unbilled costs first matters as much as the math, because you can't estimate a cost you haven't found.

Look for unbilled costs in these places before you calculate anything:

- **Open purchase orders** Items received or services delivered against a PO with no bill yet
- **Contracts and retainers** Fixed monthly fees for agencies, software, and outsourced services
- **Usage consoles** Cloud, data, and API providers that bill after the month
- **Payroll calendar** Working days after the last payroll period already recorded, through month-end
- **Budget owners** A short list sent to department heads asking what work was done but not billed
- **Last month's look-back** Vendors that billed late last month will probably bill late again

Then record the basis next to each amount, so the reviewer can test it and next month's preparer can repeat it.

## Example: One company's month-end accrual schedule

A single schedule for all accruals gives your reviewer one place to check the amounts, the basis, and the support.

Example

A software company with about $80 million in annual revenue closes October 2026. Its last payroll covered work through October 27, leaving 3 of 10 working days in the next biweekly period unpaid at month-end.

| Accrual | Basis | Calculation | Amount |
| --------------------- | -------------------- | ----------------------------------------- | -------- |
| Salaries, Oct 28–30 | Payroll calendar | 3 ÷ 10 days × $1,870,000 biweekly payroll | $561,000 |
| Cloud hosting | Usage console export | October usage to date | $118,400 |
| Outside legal counsel | Email from the firm | Firm's estimate of October fees | $46,000 |
| Staffing agency | Approved timesheets | 640 hours × $85 contract rate | $54,400 |
| Marketing agency | Contract | Fixed monthly retainer | $25,000 |
| Office utilities | Run rate | Average of the last three bills | $9,200 |
| Total | | | $814,000 |

Laptops received on October 29 against a $58,000 purchase order aren't on the schedule, because the ERP recorded them when the receipt was posted.

When the November invoices arrive, the team compares each one with its accrual:

| Accrual | Accrued | Invoiced | Difference | Change for next month |
| --------------------- | -------- | -------- | ---------- | ------------------------------------------------------ |
| Cloud hosting | $118,400 | $121,050 | $2,650 | None, usage data is close |
| Outside legal counsel | $46,000 | $51,500 | $5,500 | Ask the firm for hours and rates, not a round estimate |
| Staffing agency | $54,400 | $54,400 | $0 | None |
| Marketing agency | $25,000 | $25,000 | $0 | None |
| Office utilities | $9,200 | $8,640 | −$560 | None, within normal range |

The differences total $7,590 ($2,650 + $5,500 − $560), and they land in November's expenses. The legal accrual missed by 12%, so the basis changes, not just the number.

An illustration of the Close Agent's review of October's accruals against the invoices that followed: legal fees under-accrued by $5,500.00, a $3,200.00 August accrual with no invoice or activity since, and a $2,650.00 hosting difference within range. Demo data.

## Should you reverse an accrual or true it up?

Reverse accruals that an invoice will replace, and true up accruals that build until they're paid. Choosing one method per accrual type keeps the balance easy to reconcile and avoids counting the same cost twice.

- **Reverse** Recurring estimates that an invoice replaces, such as hosting, utilities, and professional fees, reversed on day one so the invoice can be entered normally
- **True up** Balances that grow over several months, such as annual bonuses, paid time off, and the year-end audit fee, adjusted each month to the new estimate instead of reversed

Whichever you choose, the accrued liabilities balance at month-end should tie to the current schedule line by line.

## What materiality threshold should you use for accruals?

No accounting standard sets a dollar threshold for booking an accrual, so your close policy has to set one. In Staff Accounting Bulletin No. 99 (1999), the SEC staff says that relying only on a percentage or numerical threshold to judge materiality “has no basis in the accounting literature or the law.”

A workable policy usually has three parts:

- **A review threshold for one-off items** For example, accrue any single unbilled cost above a set amount
- **An aggregate check** Add up the small items you skipped, because many small omissions can add up to a material one
- **Always-accrue categories** Payroll, bonuses, interest, and other recurring costs, whatever their size

Agree the thresholds with your auditors before year-end, because their search for unrecorded liabilities uses their own threshold, not yours.

## What are common mistakes with accrued expenses?

The mistakes to check for are accruals that never clear, costs counted twice, and costs missed entirely. Checking for each one before sign-off is cheaper than finding it in an audit.

- **Stale accruals** Last month's schedule rolled forward without checking whether the bill was already paid
- **Double counting** An accrual left in place when the invoice is expensed, or a journal accrual on top of a receipt accrual from the ERP
- **Accruing what's already in AP** An invoice entered before the cutoff and accrued again by journal entry
- **Missed costs** Accruals built only from invoices received, not from POs, contracts, and budget owners
- **No support** Round numbers with no basis, which reviewers and auditors can't test
- **Negative balances** A debit balance in accrued liabilities after close, which often means an invoice and a reversal cleared the same cost

Auditors test accruals by searching for unrecorded liabilities. They review payments and invoices from the weeks after month-end, check whether the goods or services were received before it, and compare earlier accruals with the invoices that followed.

For where accruals sit in the close, see [Month-end close process](https://emptyspaces.ai/resources/blog/month-end-close-process). For each task with its owner and reviewer, see [Month-end close checklist](https://emptyspaces.ai/resources/blog/month-end-close-checklist). If you're new to the close, start with [What is month-end close?](https://emptyspaces.ai/resources/blog/month-end-close)

## How we approach it

Our Close Agent prepares accruals as tasks on your close checklist. It builds each accrual from the source records, attaches the workpaper, and drafts the journal entry with its reversal for a named approver. Nothing posts until that person approves it. If you want your month-end accruals prepared before your team starts on them, explore [our Close Agent](https://emptyspaces.ai/product/close).

An illustration of the accruals group of an October 2026 close checklist: the accrual schedule and the clearing of prior-month accruals in review, the payroll accrual signed off and the bonus accrual true-up in progress, each prepared by the Close Agent with a named reviewer. Demo data.

Share this article

- [ Share on X ](https://x.com/intent/post?url=https%3A%2F%2Femptyspaces.ai%2Fresources%2Fblog%2Faccrued-expenses&text=Accrued%20expenses%3A%20Definition%2C%20examples%2C%20and%20journal%20entry)
- [ Share on LinkedIn ](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Femptyspaces.ai%2Fresources%2Fblog%2Faccrued-expenses)

## See our agents work through a finance process that matters to your team.

Tell us where the work gets stuck. We’ll walk through how the agents could help.

[Book a working session](https://emptyspaces.ai/contact-us)