What are accrued expenses?

Accrued expenses refer to costs that a business has incurred during a specific accounting period but has not yet paid or recorded in its financial statements. This concept is essential for the accurate representation of a company’s financial position, as it ensures that expenses are matched with the revenues they help to generate, following the accrual basis of accounting.

By recognizing these expenses, businesses can provide a more comprehensive view of their liabilities and operating costs in a given period, which aligns with the revenue that has been earned. For instance, if a company has utilized services or received goods but hasn't yet paid for them by the end of the accounting period, those costs must still be recognized to reflect true expenses incurred for that period.

This process is essential in maintaining accurate financial records and helps in preparing financial statements that comply with generally accepted accounting principles (GAAP).