How-to · Adjusting entries
How to record an accrued expense
At the end of the period, record an expense you have incurred but not yet been billed for: debit the expense and credit Accrued Liabilities. On the first day of the next period, reverse the entry, so that when the real bill arrives and you enter it, the expense isn't counted twice.
How-to guides / Accrued expense
The accounting behind it
An accrued expense is a cost you have already incurred: power used in December, wages earned but not paid, interest built up on a loan. The bill or payday comes later, but under accrual accounting the cost belongs to the month it was incurred.
The credit goes to a liability (Accrued Liabilities), not accounts payable, because there is no bill yet.
Reversing it on day one of the new month is the clean way to avoid double counting. The reversal creates a credit to the expense; the real bill then debits it, and the two net to the actual cost difference.
| Account | Debit | Credit |
|---|---|---|
| Expense | Estimate | |
| Accrued Liabilities | Estimate |
| Account | Debit | Credit |
|---|---|---|
| Accrued Liabilities | Estimate | |
| Expense | Estimate |
Worked example: December electricity
You close December, but the electricity bill for December won't arrive until January 15. Last year's December bill was about $600.00, so you accrue $600.00 on December 31 and reverse it on January 1.
On January 15 the bill comes in at $640.00 and you enter it as a normal bill. December shows $600.00 of power, and January carries the $40.00 difference along with January's own usage.
| Account | Debit | Credit |
|---|---|---|
| Utilities | $600.00 | |
| Accrued Liabilities | $600.00 |
| Account | Debit | Credit |
|---|---|---|
| Accrued Liabilities | $600.00 | |
| Utilities | $600.00 |
Common mistakes
- Accruing and then entering the bill without reversing, which counts the expense twice.
- Accruing to Accounts Payable with no vendor bill behind it.
- Accruing tiny amounts every month. Focus on what changes the picture.
- Using accruals on cash-basis books. On cash basis, expenses are recorded when paid.
In the US and in Canada
United States
For tax, an accrual-method business deducts an expense when all events fixing the liability have occurred, the amount can be determined with reasonable accuracy, and economic performance has occurred (IRS Publication 538). A recurring-item exception can apply. A cash-method business deducts expenses in the year it actually pays them.
Canada
Business income in Canada is generally computed on the accrual basis, so a properly estimated expense incurred in the year is normally deductible in that year. Farmers and fishers can use the cash method.
In AcboBooks
AcboBooks 0.2.1 has no separate screen for this, so it is done with a journal entry.
- Create the liability account. If you don't have one, add Accrued Liabilities in Company → Chart of Accounts with + New Account, Account type Other Current Liability.
- Post the accrual. Go to Activities → Make Journal Entry, date it the last day of the month, debit the expense, credit Accrued Liabilities, tick Adjusting entry and click Save & Post.
- Reverse it. Go to Activities → Transactions, find the entry and click Reverse. AcboBooks suggests the first day of the next month as the reversing-entry date; click OK.
- Enter the real bill. When the bill arrives, enter it normally in Vendors → Enter Bill.
Reports → Adjusting Entries lists every entry marked as an adjusting entry, which is handy for your accountant.
Menu names are from AcboBooks 0.2.1. Not using it yet? Try it free for 15 days, with the sample company to practise on.
Questions
What is the difference between an accrued expense and accounts payable?
Accounts payable is backed by a vendor bill. An accrued expense is incurred but not yet billed, so it is an estimate held in Accrued Liabilities.
Do I have to reverse accruals?
Not always, but it is the simplest way to avoid counting the expense twice when the bill arrives.
Do cash-basis businesses accrue expenses?
No. On cash basis, expenses are recorded when paid.
Related how-to guides
Terms used here
Sources
Updated October 25, 2026. General bookkeeping information, not tax, legal or accounting advice. Rules differ by state and province and change over time; check with the IRS, the CRA or your accountant for your own situation.
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