Accrued expenses examples: What they are and how to manage them

Running a growing business means keeping track of numerous expenses—some straightforward, others less so. Accrued expenses fall into the latter category but are crucial to managing cash flow accurately. Understanding how accrued expenses work ensures your financial records stay precise and helps you avoid surprises when reviewing your company's financial health. Let’s break down all these concepts in this article.

What are accrued expenses?

Accrued expenses are costs that your business has incurred but hasn't yet paid. These expenses represent obligations for services or goods received, with payment due at a later date. 

Unlike regular expenses—which are typically recorded when payment occurs—accrued expenses are recognized immediately upon incurring the obligation.

Common examples of accrued expenses include employee salaries, rent and vendor fees. We’ll touch on more examples in a later section. 

• Employee wages and salaries: Employees earn wages continuously, but you pay them at set intervals (weekly or monthly). The wages owed at the end of a reporting period are accrued expenses.
• Utilities and rent: Businesses often pay for utilities and rent after the service period has ended, meaning these costs accrue during the usage period.
• Professional fees: Legal or consulting services received in a given period but invoiced and paid afterward represent accrued expenses.\

Recognizing accrued expenses helps businesses align expenses with revenue generated in the same period, providing clearer insight into profitability and financial obligations.

Understanding accrued expenses vs. prepaid expenses

While accrued expenses represent costs that your business has incurred but not yet paid, prepaid expenses are just the opposite—they are costs paid in advance for goods or services your business will use in the future. 

The key difference is timing: accrued expenses are recorded before payment, whereas prepaid expenses are recorded after payment.

Here’s a quick comparison:

Understanding this distinction ensures accurate financial reporting and better cash flow management.

5 common accrued expenses examples

Beyond the typical categories, scaling businesses often encounter a range of accrued expenses tied to compensation, operations, and vendor agreements. 

Here are some practical scenarios to help you see the full picture:

Compensation-related

Example 1- Accrued bonuses: If your team earns a $50K performance bonus during Q1 but payouts don’t occur until Q2, those amounts should still be accrued in Q1’s financials.

Vendor-related

Example 2 - Accrued contractor invoices: Let’s say you hire a freelance developer to complete a feature by March 30. They finish the work, but invoice on April 3. That expense should be recorded in March when the work was completed.

Example 3 - Accrued legal or audit services: A firm may work with you throughout a reporting period but only invoice once at the end. If the services occurred in February and the invoice comes in March, you still record the expense in February.

Operational/platform costs

Example 4 - Accrued software fees: Many SaaS tools are billed after the fact. If your billing cycle ends on March 31 but the invoice is issued in April, the March usage still needs to be recognized as an expense in that period.

Example 5 - Accrued inventory costs: Suppose your supplier delivers raw materials on March 28, but the invoice won’t be sent until April 3. These costs belong in March’s records, since that’s when your business took possession of the goods.

Missing these types of accruals won’t just skew your books—it could misinform your runway, investor updates, or tax liabilities.

Key takeaways

• Accrued expenses commonly include wages, contractor invoices, legal fees, SaaS subscriptions, and inventory received but not yet invoiced.
• These costs are recorded when incurred—not when paid—to ensure expenses match the reporting period.
• Missing accruals can skew financials, mislead forecasts, and complicate runway visibility.

How to record accrued expenses (Journal entry examples)

Now that you’ve identified an accrued expense—like unpaid wages or pending vendor fees—the next step is to record it properly in your accounting system. This happens through a journal entry, which formally logs the expense and the liability it creates.

Accurate journal entries are the backbone of accrual accounting. They ensure that your books reflect what’s actually owed during the reporting period, not just what’s been paid.

Once identified, accrued expenses should be posted to your general ledger so they are reflected in your financial system. This ensures downstream reports like your balance sheet and income statement stay aligned.

The basic journal entry for an accrued expense:

When the expense is incurred but not yet paid:

• Debit: Expense account (e.g. Salaries Expense)
• Credit: Accrued Liabilities (or Accounts Payable)

Some businesses choose to group accrued expenses under accounts payable, while others separate them for better visibility into short-term obligations.

Either way, this entry increases your expenses and simultaneously records a liability, reflecting the amount owed.

Journal entry example 1 - Accrued wages

Let’s say your team earned $10,000 in wages between March 27–31, but payday is April 5.

Journal entry for March 31:

• Debit: Wages Expense – $10,000
• Credit: Accrued Liabilities – $10,000

Note that in double-entry accounting, every journal entry must balance. That means the debit and credit amounts should always match—like $10,000 on each side, for the legal fees example we just went through. This keeps your books accurate and aligned with standard accounting principles.

Let’s look at another quick example.

Journal entry example 2 - Accrued legal fees

Your legal counsel completed a project in December, but invoices you in January for $3,500.

Journal entry for December 31:

• Debit: Legal Fees Expense – $3,500
• Credit: Accrued Liabilities – $3,500

When you eventually pay the expense, you reverse the liability:

• Debit: Accrued Liabilities – $3,500
• Credit: Cash – $3,500

Overall, these entries help ensure your financial records reflect what’s actually owed, even before any money leaves your account. 

Are accrued expenses an asset or liability?

But once you've recorded an accrued expense, it's important to understand how it's classified in your accounting: Is it treated as an asset—or a liability?

Accrued expenses are classified as liabilities—not assets—because they represent money your business owes for goods or services already received. 

Even if you haven’t received a bill yet, the obligation exists, and it needs to be accounted for.

Under GAAP, accrued expenses must be recorded in the period they are incurred—even if payment hasn't been made—ensuring your financial statements follow standardized reporting rules.

Think of it this way:

• An asset brings future value to your business.
• A liability reflects a future outflow of cash.

Since accrued expenses are costs you’ve already incurred but haven’t paid, they fall squarely in the liability category.

Accrued expenses on your financial statements (Balance sheet & cash flow statement examples)

Now that we’ve covered how accrued expenses are classified, the next step is understanding where they show up in your financial reports.

Accrued expenses show up in two of the core financial statements used to assess your business’s health: the balance sheet and the cash flow statement. 

These reports help investors, lenders, and internal teams understand not just what your company spends, but when and how those obligations impact your financial position.

Properly capturing accrued expenses ensures your bookkeeping reflects a true and current picture of your financial position. Without these adjustments, your books can appear misleading—especially when expenses cross reporting periods.

Balance sheet

On the balance sheet, accrued expenses appear under current liabilities—usually labeled “Accrued Liabilities” or “Accrued Expenses Payable.” These line items reflect costs you've incurred but haven’t paid yet, and are typically due within the next 12 months.

Example line items:

• Accrued wages
• Accrued rent
• Accrued professional services

On the balance sheet, listing these liabilities gives a clearer picture of short-term financial obligations that might not show up through cash activity alone. 

These items also factor into working capital and liquidity calculations—critical for understanding your company’s financial position.

Cash flow statement

The cash flow statement shows how accrued expenses affect your actual cash position. While the expense itself is recorded on the income statement, any increase in accrued liabilities shows up under operating activities in the cash flow statement.

If your accrued expenses grow in a given period, it means you’ve recognized more expenses than you’ve paid in cash—so your operating cash flow increases. This helps explain differences between reported profit and available cash.

Key takeaways

• Accrued expenses appear under current liabilities on the balance sheet and reduce net income on the income statement.
• On the cash flow statement, increases in accrued liabilities show up under operating activities, often boosting reported cash flow temporarily.
• Capturing these correctly ensures your financial statements reflect true short-term obligations, even if cash hasn’t left the business.

Calculating accrued expenses: Simple methods and examples

Accrued expenses aren’t always handed to you on a silver platter. Often, you need to estimate them—especially if invoices are delayed or incomplete at month-end. The goal is to capture what’s been incurred, even if the exact number isn’t finalized.

Step 1: Estimate based on usage or time

If the service or cost is tied to time (like salaries, software, or utilities), estimate the portion incurred during the accounting period. This ensures that each reporting period includes all relevant costs, even if payments happen later.

Example: Your contractor charges $5,000 per month. If they worked for half the month, you’d accrue $2,500.

Step 2: Use past invoices or contracts

If the vendor invoices you monthly and the service scope hasn’t changed, you can use the previous month’s invoice as a proxy.

Example: Your legal team hasn’t sent their March invoice yet, but February’s was $4,200. If nothing changed, accrue $4,200 for March.

Step 3: Round conservatively if unsure

When in doubt, it’s better to slightly over-accrue than under-accrue—so you don’t understate your liabilities.

These estimation techniques are essential for keeping your accounting records complete and compliant, especially when actual payment data is delayed.

Managing accrued expenses effectively in your startup

Accrued expenses are closely related to cash planning, investor reporting, and overall financial visibility. Left unmanaged, they can cause misaligned forecasts, unexpected shortfalls, or miscommunication with stakeholders. Even a small business can face challenges if accruals are missed, especially during audits or financing rounds.

Here are a few ways to stay on top of them:

• Set a recurring month-end review process: Build a habit of reviewing outstanding obligations before books close each month. This helps avoid missed accruals and improves financial accuracy.
• Standardize how you estimate expenses: Use consistent rules of thumb or historical averages to estimate accruals when invoices or time logs aren’t finalized. Accuracy matters, but consistency matters more.
• Use accounting software that support real-time tracking: Manual spreadsheets make it easy to miss something. Platforms like Rho give finance teams visibility into spend as it happens—making it easier to match expenses to the right period.
• Loop in department leads: Ask teams to flag any services used, hours logged, or tools activated near month-end that haven’t yet been invoiced. Finance shouldn’t be the last to know.

If your team lacks in-house expertise, consider working with a CPA to ensure your accrued expense estimates are accurate and tax-compliant—especially during year-end close or fundraising periods.

Managing accruals effectively means putting consistent processes in place to reduce errors, improve reporting accuracy, and avoid last-minute adjustments. 

With the right accounting software, tools and workflows, finance teams can stay ahead of liabilities and maintain reliable, audit-ready records.

Gain full visibility of your finances with Rho

Accrued expenses are a core part of accrual-based accounting—and for startups, they’re essential for understanding true costs in real time. Whether it’s wages, services, or software, recording these obligations accurately helps you make better cash flow decisions and maintain clean books.

For startups using the accrual method of accounting, tracking expenses as they’re incurred—not just when cash leaves the account—is essential for maintaining accuracy during fast growth.

If you’re looking for better visibility into your company’s expenses as they happen, Rho offers tools to help finance teams track spending, streamline month-end close, and stay audit-ready.

• Rho Expense Management: Automate expense tracking, enforce policies, and streamline accounting.
• Rho Cash Flow Tools: Optimize your cash management with real-time insights and automation.

Explore how Rho can support your startup's financial operations today.