1. Nature of Accrued Expenses
An accrued expense is a liability incurred during the current accounting period but remains unpaid and unrecorded at the period-end because a formal vendor invoice has not yet been received. Common examples include utilities consumed but not billed, or staff wages earned but unpaid.
2. Journal Entry Mechanics
To record an accrued expense at year-end, increase the relevant expense account and create a liability account:
Date         Account Titles & Explanation          Ref       Debit ($)    Credit ($)
-------------------------------------------------------------------------------------
2026-12-31   Electricity Expense                   6410          1,200
                Accrued Electricity (Liability)    2150                     1,200
             (To record electricity consumed in Dec 
              for which no invoice has been received)

3. Impact of Non-Adjustment
If this adjusting entry is omitted:
  • Income Statement: Expenses are understated, leading to an overstated Net Profit.
  • Balance Sheet: Liabilities are understated, leading to an overstated Equity (Retained Earnings).
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