Accrued Expenses refer to costs or liabilities that a business has incurred but not yet paid or recorded through formal invoices by the end of an accounting period. In simple terms, these are outstanding obligations that are recognized in the books even though the actual payment is yet to be made.
In the Indian accounting context, accrued expenses are a key component of the accrual basis of accounting, which is mandatory for companies as per the Companies Act, 2013 and various tax laws. This method ensures that expenses are recorded when they are incurred, not when they are paid, giving a true and fair view of the financial position of the business.
Common examples of accrued expenses include unpaid salaries, interest on loans, audit fees, electricity bills, or any other service received but not yet billed or paid.
Accrued Expenses are reported under current liabilities on the balance sheet. For compliance purposes, accurate recording of such expenses is crucial—especially while preparing financial statements, GST filings, income tax returns, and statutory audits. Understating accrued liabilities can lead to misrepresentation of profits and potential legal issues during scrutiny.
For small businesses and startups, maintaining a proper record of accrued expenses helps in better cash flow planning, budgeting, and timely compliance with statutory dues. Even if no bill has been received, these expenses should still be accounted for to reflect the true cost of operations in that period.
Properly tracking accrued expenses also ensures you do not miss out on allowable business deductions, thereby optimising your tax liability in a legal and transparent manner.
Understanding and managing accrued expenses is essential for sound financial management and regulatory compliance in India.