Accrued Expenses:
The "Buy Now, Pay Later" of Business
May 21, 2026
Welcome to part fourteen of our series, 40 Accounting Terms Every Business Owner Should Know. We’ve talked about Accounts Payable—the bills physically sitting on your desk. But what about the expenses you’ve already "consumed" that haven't even turned into a bill yet?
Meet Accrued Expenses. They are the "ghost liabilities" that haunt your balance sheet until you finally write the check. Understanding them is the only way to avoid "financial jump-scares" at the end of the quarter.
Meet Accrued Expenses. They are the "ghost liabilities" that haunt your balance sheet until you finally write the check. Understanding them is the only way to avoid "financial jump-scares" at the end of the quarter.
What is an Accrued Expense?
An Accrued Expense is a cost that a business has incurred but has not yet paid or received an official invoice for. Most growth-minded businesses use the Accrual Method of accounting, which requires us to record expenses when they happen, not just when the cash leaves the bank.
Common Real-World Examples:
The Punchline: Accrued expenses ensure your Profit & Loss Statement accurately reflects the true cost of doing business during a specific month, regardless of when the mail arrives.
Common Real-World Examples:
- Unpaid Wages: Your team worked the last three days of March, but payday isn't until April 5th. Those three days of labor are an Accrued Expense for March.
- Interest: You have a business loan that is accruing interest every single day, even if you only make a physical payment once a month.
- Utilities: You ran the AC and the lights all through March, but the utility company won't send the bill until mid-April.
The Punchline: Accrued expenses ensure your Profit & Loss Statement accurately reflects the true cost of doing business during a specific month, regardless of when the mail arrives.
Accrued Expenses vs. Accounts Payable: The Simple Divide
It’s easy to mix these up, but here is how to separate them:
- Accounts Payable: You have a bill or invoice in hand. You know the exact amount down to the penny and the exact due date.
- Accrued Expenses: No bill has arrived yet. You are estimating or "matching" the expense to the period it belongs to so your profit isn't artificially inflated.
The Danger of Ignoring Accruals
If you don't account for accruals, your books can look deceptively "profitable."
The Scenario: Imagine you had a massive sales month in March. You feel like a rockstar! But you forgot to account for the $5,000 in contractor commissions and $2,000 in payroll taxes that won't be settled until April. Your March P&L looks amazing, but your April P&L will take a massive, unexpected hit. This "rollercoaster" makes it impossible to plan for growth.
How We Find Your "Ground Truth"
At True North Bookkeeping, LLC, our Bookkeeping Services focus on accrual-based accuracy. We look ahead to identify these hidden costs. This ensures you always know your real Net Income, allowing you to make bold moves (like investing in new software or hiring) based on facts, not just your current bank balance.
The CEO Takeaway
Accrued expenses are about the "Matching Principle." We match your expenses to the revenue they helped create. It’s the difference between "guessing" your profit and "knowing" your profit.
Next Up in the Series: We’re looking at the flip side of this coin: Deferred Revenue (Unearned Income).
#AccrualAccounting #FinancialPlanning #TrueNorthAccuracy #SmallBizFinance
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