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Accrued Liabilities – Meaning/Definition

Accrued Liabilities

Meaning of Accrued liability

Accrued expenses means the liability which have been already occurred (incurred) but incurred that have not yet been paid nor recorded through a regular transaction. Expense should be accounted in the accounting period in which it is actually incurred as per one of the basic accounting concept “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 instalment payment plan.This is a good example for understanding 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 Accrual concept.

3. Importance :

Accrual method accounting is the opposite of 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 financial performance of the entity and companies often required to follow accrual system under many regulations.

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