Accrued Liabilities: Meaning, Examples, and Journal Entry

Accrued liabilities are expenses your business has already incurred but has not yet paid or been invoiced for. You record them at period end with an adjusting entry so the cost lands in the month it was consumed, not the month the bill finally arrives. They sit on the balance sheet as current liabilities and are usually estimated, because the supplier invoice that would confirm the exact amount has not shown up yet.

Every controller runs into the same timing problem at month end. Your team used electricity in June, your lawyers worked on a contract in June, and your staff earned wages in the last week of June, but none of those bills or paychecks have cleared by the time you close the books. If you only recorded costs when cash left the account, June would look artificially cheap and July would look expensive. Accrued liabilities fix that by matching the expense to the period that actually benefited from it, which is the whole point of accrual accounting.

What are accrued liabilities?

Accrued liabilities are obligations for a cost you have incurred but not yet settled or received a bill for. The key word is incurred. The economic event already happened, so under accrual accounting (and GAAP) you owe the money whether or not paperwork exists. Because no invoice has arrived, the amount is often an estimate based on a contract rate, a meter reading, a timesheet, or last month's figure. When the real invoice shows up, you reverse the accrual and book the actual expense against accounts payable.

They are almost always short term, so on a US balance sheet you will find them grouped under current liabilities, frequently on a single line called accrued liabilities or accrued expenses, sometimes broken out into accrued payroll, accrued interest, and accrued taxes.

Accrued liabilities examples

The most common accrued liabilities on a US company's books are:

• Accrued payroll and payroll taxes. Wages employees earned before the period ended but that are paid in the next payroll run, plus the employer share of FICA.
• Accrued interest. Interest that has built up on a loan or credit line but is not due until the next payment date.
• Accrued utilities. Electricity, gas, water, and internet you used in the period but will be billed for later.
• Accrued professional fees. Legal, audit, and consulting work performed in the period where the firm invoices in arrears.
• Accrued income and property taxes. Taxes that relate to the period but are paid on a later government schedule.
• Accrued bonuses and PTO. Amounts employees have earned that will be paid out later.
• Goods and services received not invoiced. The largest recurring accrual for most AP teams. Inventory or services tied to open purchase orders have physically arrived, but the supplier bill has not, so you accrue the cost off the receipt.

Accrued liabilities journal entry

Recording an accrual takes two entries across two periods. First, at period end, you debit the relevant expense and credit accrued liabilities. Say your utility usage for June is estimated at $4,000:

That puts the cost in June, where it belongs. Most teams then flag the entry to reverse automatically on the first day of July:

When the actual utility bill of $4,150 arrives in July, you book it normally as accounts payable. The reversal cancels the June estimate, and only the $150 difference between the estimate and the real invoice hits July's expense. That is why reversing entries save so much time: you never have to hunt down the old accrual and net it against the incoming invoice by hand.

Accrued liabilities vs accounts payable

This is the distinction that trips people up, and auditors test it every year. Both are amounts you owe and both sit in current liabilities, but they are not the same thing.

The short version: accounts payable is a confirmed bill you have in hand, while an accrued liability is your best estimate of a cost you know you owe but have not been billed for. As soon as the invoice arrives, the item stops being an accrual and becomes accounts payable. For a fuller walk through the same line, see accrual vs accounts payable.

Accrued liabilities vs accrued expenses

In everyday use these two terms mean the same thing, and most people treat them as synonyms. If there is a shade of difference, it is one of scope. Accrued expenses point specifically at costs on the income statement (wages, interest, utilities) that you have recognized but not paid. Accrued liabilities is the broader balance sheet label for the obligation those expenses create, and it can also include amounts that are not strictly period expenses, such as accrued PTO or customer rebates payable. Practically, when someone says accrued expenses they almost always mean the same current liability you would call accrued liabilities.

Where do accrued liabilities appear in financial statements?

Accrued liabilities are disclosed in financial statements as current liabilities on the balance sheet, since they are expected to be settled within twelve months. Smaller companies often show one combined line, while larger ones break out accrued payroll, accrued interest, and accrued taxes separately or in the notes. The matching expense already sits on the income statement in the period it was incurred, which is the reason you accrued it in the first place.

How AP teams keep accruals accurate

The month-end accrual list is only as good as your view of what has been received but not billed. If a shipment arrived on the 29th and the invoice is still in a supplier's outbox, someone has to know to accrue it. This is where a clean accounts payable process pays off. When receipts are matched to purchase orders in real time, the goods-received-not-invoiced balance falls out of the system instead of a spreadsheet, and your accrual is a report rather than a guess. Our accounts payable automation software captures every invoice the moment it arrives and matches it to the PO and receipt, so the gap between receipt and invoice, the exact window your accrual is trying to estimate, is as small and as visible as possible. That means fewer surprises when the real bills land next month, and a close you can defend.

Related reading: how to accrue expenses at month end, the goods received note, and the accounts payable month-end close.

Frequently asked questions

Are accrued liabilities debit or credit? Accrued liabilities carry a credit balance, like all liabilities. You credit accrued liabilities to record the obligation and debit the matching expense. When the accrual reverses or is paid, you debit accrued liabilities to clear it.

Are accrued liabilities current or long term? Almost always current. They are costs you expect to settle within a year, so they sit in current liabilities. The rare exception is something like a long-term portion of accrued deferred compensation, which would be classified as long term.

Is accounts payable an accrued liability? No. Accounts payable is a specific type of liability backed by an actual supplier invoice, while accrued liabilities are estimated obligations for which no invoice has arrived yet. They are reported as related but separate items.

How do you calculate accrued liabilities? You estimate the cost incurred in the period using the best available basis: a timesheet for payroll, a contract rate for interest, a meter reading for utilities, or the purchase order value for goods received not invoiced. The estimate is trued up when the real invoice arrives.

Why do accrued liabilities get reversed? Reversing the accrual on day one of the next period means that when the actual invoice posts to accounts payable, it does not double count the expense. The reversal and the invoice net out, leaving only the small difference between your estimate and the real amount.