What are Accrued Expenses?

Accrued Expenses are expenses that a business incurred for which there is no invoice or documentation issued yet available for its payment.

It classified on the Balance Sheet as Current Liabilities so it is expected to be repaid within 12 months.

Examples of Accrued Expenses

A common example of an Accrued Expense is compensation owed to a business employee for services rendered, but payment has not yet been made to that employee. This generally applies to business managers and sometimes payment is made in the form of non-cash consideration such as stocks at a future date.

Another example of an Accrued Expense is a monthly lease payment for office space. Even though there’s no invoice, the business knows it will have to pay the usual amount at the usual time according to a pre-existing payment arrangement.

Secured Accrued Expenses

Some accrued expenses are secured by certain predefined assets of the business. This means that the creditor could receive payment out of the assets of the business if the expense remains outstanding and unpaid.

Unsecured Accrued Expenses

Unsecured accrued expenses means that the creditor has no claim to any of the business assets. Unsecured accrued expenses tend to carry much more expensive terms due to the higher risk involved.

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