Accrued expenses payable

Accrued expenses payable are those obligations that a business has incurred, for which no invoices have yet been received from suppliers. An accrued expense payable is recorded with a reversing journal entry, which (as the name implies) automatically reverses in the following reporting period. By recording the expense in this manner, a business accelerates expense recognition into the current period. These payables are considered to be short-term liabilities, and appear under that classification in the balance sheet.

For example, a janitorial firm may provide cleaning services to a company, but does not issue a monthly invoice to the company before the company controller closes the books for the month; accordingly, the controller accrues the expense in anticipation of receiving the invoice at a later date. As another example, goods are received during the month and recorded in a company's receiving log, but no supplier invoice arrives by the end of the month; in this case, the controller estimates the amount of the invoice based on the quantity received, and records an accrued expense.

Accrued expenses payable may not be recorded if they are too small to have a material impact on the financial results of a business. Avoiding immaterial accrued expenses payable can significantly reduce the amount of work required to close the books. This is accomplished by having a formal company policy that sets a monetary threshold below which expenses are not to be accrued.

Accrued expenses payable are not recognized in a business that operates under the cash basis of accounting, since these entities only recognize expenses when cash is paid to suppliers. The cash basis of accounting tends to delay the recognition of expenses into later reporting periods.

Related Courses

The Balance Sheet