Plain definition
An accrued expense is an expense recognised for goods or services the business has received before it has paid, and sometimes before it has received the supplier's invoice. The corresponding credit is normally an accrued-expense liability. The amount should be based on the best available evidence: a contract rate, approved work record, goods-received note, usage data, or a reasoned estimate.
It is narrower than an accrual in general. An accrued expense always concerns a cost already incurred; it does not describe earned income or every other period-end adjustment.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A law firm completes 30 approved hours of June work for a company at per hour. The invoice will be issued in July. Based on the signed timesheet, finance records legal expense and accrued expenses in June. When the invoice arrives, accounts payable settles the liability. If the invoice is because one additional June hour was approved later, finance investigates and records the supported difference in the appropriate period.
The agreement and timesheet make the estimate supportable; a vague expectation of future legal work does not. The company must also consider whether tax and contractual terms affect the amount recorded.
Why it matters
Leaving the work out of June makes the month appear more profitable and understates obligations due to suppliers. That can encourage spending decisions based on cash in the bank while an already-consumed service has not entered the cost view.
Practical consequence
Ask service owners for work-complete evidence near cut-off and provide finance with approved rates or purchase commitments. Maintain an accrued-expense register showing vendor, service period, evidence, calculation, account, preparer, reviewer, reversal choice, and invoice follow-up. Age unmatched accruals and resolve them; a liability that remains without an invoice or current evidence needs fresh assessment, not automatic carry-forward.