Accrued liabilities are expenses a business has incurred but not yet paid or been billed for, recorded so the period reflects all costs it actually generated.
Accrued liabilities capture costs the business has used up but not yet settled, wages earned but unpaid, interest accumulating on a loan, utilities consumed but not yet invoiced. Under accrual accounting they are recorded as liabilities (and expenses) in the period incurred, even before an invoice or payment.
Accruals are recorded through adjusting entries at period-end and reversed or settled when the actual bill is paid. They ensure the income statement reflects the full cost of running the business in a period, rather than only the costs that happened to be paid in cash.
At December 31, a company owes $1,500 of interest that accrued but is not due until January. It records an accrued liability and interest expense in December, so the year's results include the cost it actually incurred.
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