Accrued Expenses

Accrued expenses are costs that a business has incurred but not yet paid or received an invoice for. Under accrual accounting, they appear on the balance sheet as current liabilities - obligations that will require a cash payment in the near term. The principle behind them is straightforward: if a sub-contractor works on site in September but sends the invoice in October, the cost belongs in September's accounts, not October's.

How Accrued Expenses Work

Accrual accounting follows the matching principle: record expenses in the period when they are incurred, not when cash leaves the business. At the end of each reporting period, a business makes adjusting journal entries to capture any costs incurred but not yet billed. The relevant expense is debited (increasing costs on the income statement) and an accrued liability is credited (increasing current liabilities on the balance sheet). Once the invoice arrives and payment is made, the accrued liability is reversed and cleared.

Common examples for trade, project, and service businesses include:

• Wages and salaries where a pay cycle straddles a month end
• Sub-contractor costs for work completed before the invoice arrives
• Utilities where the billing cycle runs behind actual usage
• Interest on a loan that has accrued but is not yet due for payment
• Contractor or consultant fees for services delivered but not yet invoiced

Accrued Expenses vs. Accounts Payable

Both accrued expenses and accounts payable represent amounts owed to external parties, which is why the two are frequently confused. The distinction is documentation. Accounts payable arises from invoices already received. Accrued expenses exist before an invoice arrives - they are estimates of what will be billed.

For project-based businesses - a building contractor at month end, an AV integrator with sub-contractors still on site, a renewables installer with equipment delivered but not yet invoiced - the gap between work done and invoice received can span several weeks. Failing to accrue these costs means the monthly accounts understate actual costs and overstate profit for the period, distorting any business decisions based on those numbers.

Businesses using Zigaflow's invoices feature can track which supplier costs are pending against live jobs, making it easier to identify what has been incurred and what still needs to be accrued at month end.