Accounting Demystified

Accrued Expenses

We usually record an expense when a bill (also called an invoice) is received. Expenses that are recorded before any bill has been received are called accrued expenses. Companies will record accrued expenses in order to make sure that their financial statements are accurate. Financial statements are prepared on the accrual basis, which means that cash does not have to change hands in order for something to be recorded. The items that will be included in accrued expenses are discussed in detail in Chapter 18.

Current liabilities are listed in the order in which they are expected to be satisfied. The ones that will be paid first are listed first. Noncurrent liabilities are grouped by type (Loans payable, Bonds payable, Notes payable, ...