Glossary
Accounting Basics

Accrued Expense

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

An accrued expense is a cost recognized in the books before it is paid, reflecting obligations incurred but not yet settled.
An accrued expense is a cost that has been incurred by an organization but has not yet been paid or recorded through a normal invoice or payment process. These expenses are recognized in the period in which they are incurred, regardless of when cash is actually paid. Accrued expenses ensure that financial statements accurately reflect the organization's financial obligations and comply with the accrual basis of accounting. Common examples include salaries, interest, and utilities that have been earned by employees or vendors but remain unpaid at the end of an accounting period. Properly tracking and reporting accrued expenses helps nonprofits maintain transparency and accountability in their financial reporting.

Key Takeaways

  • Accrued expenses record costs before payment is made.
  • They are key for accurate accrual-based accounting.
  • Common examples are salaries, utilities, and interest owed.
  • Help ensure financial statements reflect all liabilities.

Why It Matters

Accrued expenses ensure financial statements accurately reflect all liabilities, supporting compliance and transparency.

Real World Example

Imagine a nonprofit organization that pays its employees on the 5th of each month for work completed in the previous month. At the end of June, the organization owes salaries for work performed in June, but the payment will not be made until July. To ensure its June financial statements accurately reflect this liability, the organization records an accrued expense for June salaries. When the payment is made in July, the accrued expense is reversed, and the cash account is reduced. This process ensures the financial statements present a true and fair view of the nonprofit's obligations and supports transparency for donors and stakeholders.

How Aplos Helps

In Aplos, users can record accrued expenses to maintain proper expense recognition, even if payment hasn't occurred yet. This helps your nonprofit's financial reports align with accrual accounting standards, providing a true picture of your financial obligations in each period. Aplos makes it easy to track, adjust, and reverse accrued expenses when payments are made.
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Frequently Asked Questions

What is an example of an accrued expense?

A common example is salaries owed to employees at the end of a month, which are paid in the following month but recorded as an expense when incurred.

Why do nonprofits need to record accrued expenses?

Recording accrued expenses ensures financial statements reflect all current obligations, supporting accountability and compliance with accounting standards.

How does Aplos help manage accrued expenses?

Aplos allows you to record, track, and reverse accrued expenses, making it easier to maintain accurate, accrual-based accounting and clear financial reports.

Related Terms

Expense Reimbursement
Inventory Count
Sub‑Ledger
Fringe Benefit
Encumbrance
Endowment Fund

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