An accrued liability is a current liability and it arises as a result of work performed and acknowledged by CSC but for which invoices are not yet due and for goods provided and services rendered for which an invoice has not yet been received. Accrued Liabilities In this article we provide the Meaning of Accrued Liabilities with Example. Must Read Accounting Standard 10.
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Meaning of accrued liability
Accrued expenses mean the liability that has already occurred (incurred) but incurred that has not yet been paid nor recorded through a regular transaction. Expense should be accounted for in the accounting period in which it is incurred as per one of the basic accounting concepts “Accrual”. So rather than waiting for the next period in which the actual cash outflow will be there, they should be booked in financial statements in the year of occurrence itself. Accrued expenses are the opposite of prepaid expenses.
Accounting treatment
Debit…….Expenses a/c
credit…………..Expenses payable a/c
Examples
1. An entity may have purchased and received goods or services, but not yet paid for them because the seller offered an installment payment plan. This is a good example of understanding the accrual concept.
2. A company has a bank loan outstanding, on which it owes interest that has not been billed still by the banker at the end of an accounting period. Here the expense should be recognized as per the Accrual concept.
3. Importance :
Accrual method accounting is the opposite of the cash method of accounting, which recognizes economic events only where cash is exchanged. The accrual method is more common than the cash method since it depicts the true picture of the financial performance of the entity and companies are often required to follow an accrual system under many regulations.
Must Check Marginal Costing Introduction.
