ACCRUED EXPENSES Meaning and
Definition
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Accrued expenses refer to the liabilities that a company incurs but has not yet paid as of the end of a given accounting period. These expenses are expenses that have been recognized or incurred by the company in the period but not yet paid for. Accrued expenses are typically recognized by companies in their financial statements through the accrual accounting method, which requires recognizing revenues and expenses when earned or incurred rather than when cash is received or paid.
Examples of accrued expenses include salaries and wages earned by employees but not yet paid, interest expense on outstanding debts, utility bills that are not yet due, and taxes payable for the current period.
Accrued expenses are recorded as liabilities on a company's balance sheet, as they represent obligations to pay in the future. The amount of accrued expenses is typically determined by estimating the actual expenses and any legal obligations that exist. As the expenses are recognized and paid in subsequent periods, the accrued expenses are then reduced, and the corresponding cash outflows are recorded.
Accrued expenses are important to consider in financial analysis as they affect a company's financial position, liquidity, and profitability. They reflect the company's obligations and the potential cash outflows that will occur in the future.
Etymology of ACCRUED EXPENSES
The word "accrued" comes from the Old French word "acreu", which means "increase" or "growth". It is derived from the Latin word "accrescere", which also means "to grow". "Expenses" comes from the Latin word "expensum", the past participle of "expender", meaning "to spend". When combined, "accrued expenses" refers to the expenses that have accumulated or grown over time but have not been paid yet.
