Which term describes expenses incurred but not yet paid or recorded?

Which term describes expenses incurred but not yet paid or recorded?

• A. Accrued expenses
• B. Prepaid expenses
• C. Accrued revenues
• D. Deferred expenses

Answer: (A)

In accrual accounting, expenses are recorded when they are incurred, not when cash changes hands. When an expense has been incurred but hasn’t yet been paid or recorded, it creates an obligation the company owes, which is captured as an accrued expense. This entry aligns the expense with the period in which the related benefit was received, matching costs to the revenues they helped generate. On the books, this shows up as an expense on the income statement and a current liability (accrued liabilities) on the balance sheet. When the bill is paid later, cash is reduced and the liability is cleared. Prepaid expenses are cash paid before the service or good is used, recorded as an asset and expensed later. Accrued revenues are revenues earned but not yet billed or collected. Deferred expenses refer to costs paid in advance and recorded as assets until they’re recognized as expenses.

In accrual accounting, expenses are recorded when they are incurred, not when cash changes hands. When an expense has been incurred but hasn’t yet been paid or recorded, it creates an obligation the company owes, which is captured as an accrued expense. This entry aligns the expense with the period in which the related benefit was received, matching costs to the revenues they helped generate. On the books, this shows up as an expense on the income statement and a current liability (accrued liabilities) on the balance sheet. When the bill is paid later, cash is reduced and the liability is cleared.

Prepaid expenses are cash paid before the service or good is used, recorded as an asset and expensed later. Accrued revenues are revenues earned but not yet billed or collected. Deferred expenses refer to costs paid in advance and recorded as assets until they’re recognized as expenses.