ACCRUED EXPENSES

Accrued expenses are expenses that are incurred, but for which payment has not been made, during a given accounting period. Accrued expenses are indicated on the balance sheet as a current (short term) liability, and are usually recorded in a journal entry, as well as offsetting liability. Without a journal entry, the expenses would not appear in the entity's financial statements in the period incurred which will result in high profit yield for the period.

Expenses which are commonly accrued are interest on loans, wages,salaries,utility costs, services received and taxes all for which payments have not yet been made or their invoice have not yet been received. For example:
A company borrowed 2 million naira on November 1st, the agreement requires that an interest of 3% be paid on this 2 million naira at the end of 3 months which will elapse by January 31, for a company whose financial year end is December 31. Going by this development it will be very impossible for this company to reflect this expenses in their financial statements as of December 31 because the 3 months has not yet arrived,so the company will not have paid let alone receive an invoice of payment. In order not to record a deceptive account statements, an adjusting entry which will consist of a debit of 3% (#60,000.00) to interest expense in income statement account and a credit of #60,000.00 to interest payable in a balance sheet account has to be created.

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