In accounting, accrued expenses vs accounts payable are part of short-term liabilities. Although both financial obligations are amounts/figures that must be settled in the near future. These entries are sourced, recognized, and documented differently.
For people new to the field, accrued expense vs accounts payable can be quite a confusing topic. This guide addresses questions related to both concepts and covers accrued expense vs accounts payable taxes. Apart from this, the accrued expense vs accounts payable examples will also be highlighted for better understanding.
Hence, if you have ever wondered whether accounts payable or accrued expenses are liabilities or assets, this is your sign to dive further.
What to Know About Liabilities? | Accrued expenses vs Accounts Payable
In accounting, liabilities represent the business or individual’s responsibility to repay what they owe to external parties, such as creditors, suppliers, and other stakeholders. The concerned person may have borrowed money, purchased goods and services on credit, or entered into other contractual agreements.
Such obligations are to be settled in the future either by cash, transfer of goods, or extension of a service.
Accrued expenses vs accounts payable are short-term liabilities that have to be paid off within a year or during the normal operational period.
What are accrued expenses?
Accrued expenses are costs your business has already used — but hasn’t paid for yet. Think of them as “unpaid bills that haven’t been recorded as bills yet.” You received the benefit already, but the invoice will come later.
Simple examples
- You used electricity all month, but the utility bill arrives next month.
- Employees worked this month, but payday is next month.
- You hired a lawyer and the invoice comes at the end of the project.
Even though cash hasn’t left the bank yet, the expense still belongs to this period. So it gets recorded so your financial statements stay accurate.
Accrued expenses make your numbers more realistic because they show what you truly owe — not just what you’ve paid.
Is Accrued Expenses an Expense Account?
People often think accrued expense is a part of the expense account because of its name. In reality, they are a liability that represents the unpaid expenses and is shown in the balance sheet, not the income statement.
What are the Key Features and Examples?
Here are some of the key features of the expenses:
- The firm has benefited from the goods and services, but the payments have not yet been completed.
- They are taken into consideration so that the expenses match the revenues.
- Once they are paid off, the account is reversed or cleared.
Some of the accrued expenses examples include:
- Employees are remunerated for their performance after they have completed their task.
- The accumulated loan interests, not yet due.
- Electricity, water, and internet are consumed, but the bills are not invoiced.
- Taxes to the government have been recognized, but payment remains outstanding.
What are accounts payable?
Accounts payable are bills you’ve already received and recorded, but still haven’t paid.
In simple words:
You have the invoice in your system — you just haven’t paid it yet.
Common examples
- Vendor sends an invoice for supplies
- Software company bills you for your subscription
- A contractor bills you for completed work
These invoices sit in “accounts payable” until you pay them. Once paid, they disappear from the balance.
Accounts payable help you track who you owe, how much you owe, and when those payments are due — so nothing slips through the cracks.
Is Accounts Payable an Expense?
One cannot categorize accounts payable as such, as it is a liability. However, the goods or services consumed are entered as an expense, while the unpaid amount is credited as a liability.
What are the Examples?
- Buying inventory from a supplier but promising to pay at a later date.
- Settling utility bills after the invoices have been issued.
- Rent, interests, taxes, and utility bills have been drawn up, but payment is pending.
Key differences: Accrued Expenses vs Accounts Payable
Here’s the difference in the simplest way possible:
Accrued expenses = expense happened, no invoice yet
Accounts payable = invoice received, waiting to pay
| Point | Accrued Expenses | Accounts Payable |
|---|---|---|
| When it’s recorded | Expense already happened | Invoice has been received |
| Invoice status | No invoice yet | Invoice already recorded |
| Example | Utility used, bill coming later | Vendor bill waiting to be paid |
| Purpose | Match expenses to the right period | Track unpaid vendor bills |
| Where it shows | Liability on balance sheet | Liability on balance sheet |
| Cash paid yet? | Not yet | Not yet |
Accrued Expenses vs Accounts Payable Taxes
- Under the accrual basis tax treatment, both accounts are deductible once they have been established, irrespective of the status of disbursement.
- On the other hand, the cash method states that the amounts are taxable after funds are remitted.
Frequently Asked Questions
Do I record this as an accrued expense or accounts payable?
It all comes down to the trigger. You record Accounts Payable the moment you “book” an invoice into your system. It’s a formal promise to pay a specific bill.
You record an Accrued Expense at the end of the month when you’re looking at your books and realizing, “Wait, I haven’t been billed for the internet yet, but I definitely used it.” You make a manual entry (an accrual) so your monthly report shows the true cost of doing business that month.
Pro-Tip: If it’s a regular, recurring bill like rent or utilities where the bill often comes late, it’s almost always an accrual first.
How do I move an accrued expense into accounts payable?
This is what we call “clearing the accrual.” When that bill finally arrives in the mail, you don’t want to count the expense twice.
First, you enter the bill into Accounts Payable like you would any other invoice. Then, you (or your software) need to create a reversing entry for the original accrual you made. This “zeros out” the estimate you made earlier and replaces it with the actual bill.
If you use software like QuickBooks or Xero, many people set their accruals to “auto-reverse” on the first day of the next month to keep things clean.
Is payroll an accrued expense or AP?
In the US, payroll is almost always treated as an Accrued Expense.
Think about it: Your employees work every day, earning their keep. Even if payday isn’t until next Friday, you already owe them for the work they did today. Since your employees don’t send you an “invoice” for their time, you “accrue” their wages at the end of the month to make sure your labor costs are captured in the right period. You’d only see it in AP if you were paying an outside staffing agency that sent you a formal bill.
Why does my auditor care about AP versus accruals?
Auditors care because they want to make sure you aren’t hiding expenses to make your company look more profitable than it actually is.
If you only look at Accounts Payable, your books only show the bills you’ve received. An auditor wants to see the Accruals too, because that shows the “unseen” debt—like interest on a loan or taxes you haven’t paid yet. It’s all about making sure your balance sheet shows the full story of what you truly owe.
What does accrued mean in accounting?
It means recognizing incomes and outgoings first, paying or receiving later.
Takeaway
5kAdvisory offer the services to manage your books, expenses, and analyze whether these expenses can be avoided. Our expert accountants analyze your books, manage the books, and provide insight for businesses to progress.