An Accrued Liability is an expense a business has incurred but not yet paid or been billed for, recorded on the balance sheet as a liability until the payment is made.
Accrued liabilities, also called accrued expenses, are a product of 📝Accrual Accounting, which records expenses when they are incurred rather than when cash leaves the bank. When a company receives a service it expects to pay $5,000 for but has not yet received the invoice, it records $5,000 of expense on the 📝Income Statement and $5,000 in an Accrued Liabilities account. When the bill is paid, cash and the liability both decrease, and no further expense is recorded. Common examples include wages and bonuses earned but not yet paid, interest owed on debt, taxes, and utilities or professional services used before the invoice arrives.
The timing matters for reading results. A management bonus accrued through the year has already been expensed by the time it is paid, so paying it reduces cash without affecting operating income or loss in the period of payment. Accrued liabilities differ from accounts payable, which record bills already received, and they are the liability-side counterpart of prepaid expenses, which record cash paid before the expense is incurred. Under the 📝Cash Basis, no accrued liability exists; the expense appears only when the cash is paid.