What is Accrued Expenses?
Accrued expenses are costs that have been incurred during the reporting period but for which no invoice has yet been received or payment made. Under accrual accounting they are recognised as an expense in the income statement and a liability on the balance sheet, even though cash will move later.
How It Works
- Identify expenses related to the period: utilities, salaries earned but not yet paid, interest, bonuses, audit fees.
- Estimate the amount based on contracts, prior bills, or actual usage.
- Debit expense and credit accrued liability at period-end.
- Reverse the entry in the next period as the actual invoice or payment occurs.
Saudi Context
Saudi companies must accrue period-end items such as December salaries paid in January, year-end audit fees, GOSI dues, and electricity bills under IFRS. ZATCA accepts properly supported accruals for zakat base calculations.
Example
A Riyadh retailer accrues SAR 80,000 of December salaries and SAR 15,000 of December electricity at year-end. Both are charged to the income statement and shown as accrued liabilities until paid in January.