What are Accrued Expenses?
Accrued expenses are costs you have incurred but have not yet paid or received a bill for. They represent obligations you owe at period end that have not been formally invoiced.
Why Accrued Expenses Matter
Accrual accounting requires recording expenses when incurred, not when paid. If your team worked the last week of December but payday is January 5, those wages are an accrued expense in December.
For SaaS founders closing monthly books, common accruals include unpaid wages, unused vacation liability, interest owed, and professional service fees for work completed but not yet billed.
Recording Accruals
At month-end, estimate accrued expenses and record them with adjusting journal entries. When the actual bill arrives, reverse the accrual and record the real expense.
Formula
Accrued Expense Entry:
Debit: Expense Account
Credit: Accrued Expenses (Liability)
Example
Your SaaS company at December 31:
- Employee wages earned but unpaid: $45,000
- Contractor work completed, invoice pending: $8,000
- Interest accrued on credit line: $2,000
Total Accrued Expenses: $55,000
This liability appears on your December balance sheet, and the expenses appear on your December income statement, even though no cash has moved.