Accrued expenses

What are examples of accrued expenses?

• General goods and services received but not paid for
• Construction services
• Bonuses and wages to employees
• Warranties given to customers

Why are accrued expenses important?

• A better reflection of business reality: This ties into the overall purpose of accrual accounting. Accrued expenses give a more accurate reflection of a company's business reality than cash-based accounting since it shows in which period a business event has occurred (in this case the delivery of a good or service) rather than when cash has exchanged hands.
• Helps to estimate future cash flow and capital needs: Accrued expense gives a better overview of a company's future outflow of cash and can there help estimate a company's future financing needs.