Glossary
What is an accrued expense?
What an accrued expense is, why it belongs in the month it was used, and how a month-end accrual and its reversal look in the journal.
Updated
In short
An accrued expense is a cost incurred in a period but not yet billed or paid by its end. In SimpleERP you post it as a month-end manual journal and reverse it on the first of the next month.
An accrued expense, also called an outstanding expense, is a cost a business has already incurred but not yet been billed for or paid by the end of a period, such as electricity used in September but billed in October. It is recorded as an expense in the period it was used and as a current liability until the bill is paid.
Accrued expense: a worked example
Lakshmi Steel Furnitures' September electricity, about ₹18,400, will be billed on 8 October 2026. The accountant accrues it so September's profit carries the cost.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 30 Sep 2026 | Utilities | ₹18,400 | |
| 30 Sep 2026 | Expenses Payable | ₹18,400 | |
| 1 Oct 2026 | Expenses Payable (reversal) | ₹18,400 | |
| 1 Oct 2026 | Utilities (reversal) | ₹18,400 |
FAQ
Questions, answered
Is an accrued expense an asset or a liability?
A liability. The business has used something it has not yet paid for, so it owes the amount. It appears under current liabilities as outstanding expenses or expenses payable until the bill is settled.
Why reverse the accrual next month?
So the real bill can be recorded normally when it arrives. The reversal on the first of the month cancels the estimate in the new month; the actual bill then replaces it, and only any small difference lands in the new month.
What is the difference between accrued and prepaid expenses?
They are opposites. An accrued expense is used now and paid later, so it is a liability. A prepaid expense is paid now and used later, so it is an asset. Both move a cost into the period it belongs to.
Does SimpleERP accrue salaries automatically?
Yes. Approving a payroll run posts salary expense and employer contributions against salaries payable and statutory payables, and paying the run clears them. Approved expense claims do the same for reimbursements.
Related
Keep reading
Accrual accounting
Recording income when earned and expenses when incurred, so each month's profit matches the work done in it.
Read morePrepaid expense
A payment made in advance for a benefit used in later periods, held as an asset and expensed month by month.
Read moreProvision
An amount charged to profit now for a likely liability or loss whose exact amount or timing is not yet known.
Read more
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