Accrued expense, or accrued liability, refers to an expense that is recognized on the books before it has been paid. Expenses are recorded in the period during which they are incurred.
Because accrued expenses represent a company's obligation to make future cash payments, they appear on a company's balance sheet as current liabilities. A supplier's invoice that arrives later can differ from an accrued expense that is based on an estimate. Expenses are recognized using the accrual method of accounting when they are incurred, and not necessarily when they are paid.
An accrued expense occurs when a business purchases supplies from a vendor but does not yet receive an invoice for the purchase. Aside from interest payments on loans, warranties on products, and taxes, accrued expenses may also include interest on loans, warranties on products or services received, or other costs that have been incurred but for which no invoices have been received or payments made. Commissions, wages, and bonuses accrue during the period they occur, even though the actual payment occurs in the following period.