ACCRUED EXPENSE Meaning and
Definition
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Accrued expense refers to a financial term used in accounting to describe an expense that has been incurred or consumed but has not yet been paid for or recorded in the books of accounts. It represents an obligation that a company owes for goods or services received but not yet paid for.
Accrued expenses are typically recorded as a liability in the balance sheet until they are settled. These expenses occur when a company receives goods or services from a supplier but has not received the corresponding invoice or made the payment by the end of the accounting period. Therefore, it is important to recognize and account for these obligations in the financial statements in order to ensure accurate reporting of a company's financial position.
Common examples of accrued expenses include utilities (such as electricity or water) used but not yet billed, salaries or wages earned by employees but not yet paid, and interest or taxes incurred but not yet paid. These expenses are recognized through an adjusting entry at the end of the accounting period, ensuring that the financial statements reflect the accurate financial position of the company.
Accrued expenses play a crucial role in matching expenses with the related revenues in the appropriate accounting periods. By recognizing these expenses, companies can provide a more accurate representation of their financial obligations and make informed decisions about cash flow management and financial planning.
Etymology of ACCRUED EXPENSE
The word "accrued" originates from the late Middle English term "accrue" which meant "to be added" or "to come into existence". It is derived from the Old French word "acreu", meaning "increase" or "growth", which is ultimately derived from the Latin word "accrescere", meaning "to grow" or "to increase".
The term "expense" originated from the Latin word "expensum", which means "cost" or "expenditure". It is derived from the Latin verb "expendere", meaning "to weigh out" or "to pay out".
When these two words are combined, "accrued expense" refers to an expenditure or cost that has been incurred but not yet paid for, and is therefore gradually accumulating or increasing until it is settled.
