ACCRUED EXPENSES (ACCRUED LIABILITIES)
Accrued expenses are expenses that have been incurred, but not yet paid for.
To put it another way, an accrued expense is paid after being recorded on
the books. Every adjusting entry for accrued expenses debits an expense
account, increasing expenses on the income statement and reducing net
income, and credits a payable account, increasing liabilities on the balance
How to Record Accrued Expenses
The general entry to record an accrued expense is:
[Various Titles] Expense
(income statement expense account)
[Various Titles] Payable
(balance sheet liability account)
To accrue expense
Examples of Accrued Expenses
Accrued expenses include the following:
• Interest owed but not yet paid on borrowed funds.
• Rent owed, but not yet paid.
• Commissions and royalties owed but not yet paid.
Commission [or Royalty] Expense
Commission [or Royalty] Payable
• Utility and telephone bills owed, but not yet paid:
Utilities [or Telephone] Expense
Utilities [or Telephone] Payable
• Salary and wage expense owed, but not yet paid.
*Many companies use “Salaries Expense” for employees paid by the week and
“Wages Expense” for employees paid by the hour.
• Property and other taxes owed, but not yet paid.
Property [or Federal Income, State Income, etc.] Tax Expense
Property [or Federal Income, State Income, etc.] Tax Payable
How Failure to Make the
Adjustment Affects the
Failure to record an adjusting entry will have the following impacts on the
• Liabilities will be understated on the balance sheet (because the
omitted entry increases a liability account);
• Expenses will be understated on the income statement (because the
entry increases an expense account); and, as a result,
• Net income will be overstated on the income statement.
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had 19X5 sal