Which term describes expenses incurred in one fiscal period but not paid until a later period?

Which term describes expenses incurred in one fiscal period but not paid until a later period?

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

Answer: (A)

In accrual accounting, expenses are recorded when they are incurred, not when cash is paid. An accrued expense is a liability recognized for costs that have been incurred in the current period but will be paid in a future period. For example, utilities used in December but paid in January creates an accrued expense in December: you record the expense now and a liability owed, then later you pay cash to clear that liability. Accrued revenues, by contrast, are revenues earned before cash is received. Prepaid expenses are payments made before the related expense is incurred (they’re assets to be expensed later). Deferred revenue is cash received before the revenue is earned (a liability).

In accrual accounting, expenses are recorded when they are incurred, not when cash is paid. An accrued expense is a liability recognized for costs that have been incurred in the current period but will be paid in a future period. For example, utilities used in December but paid in January creates an accrued expense in December: you record the expense now and a liability owed, then later you pay cash to clear that liability.

Accrued revenues, by contrast, are revenues earned before cash is received. Prepaid expenses are payments made before the related expense is incurred (they’re assets to be expensed later). Deferred revenue is cash received before the revenue is earned (a liability).