Accrued Expenses vs Accounts Payable: The Difference, With Journal Entries
Accounts payable is what you have been billed for. Accrued expenses are what you owe but have not been billed for yet. Examples, entries and month-end.
Both are amounts the business owes. Both sit in current liabilities. Both are paid to the same suppliers through the same bank account. The distinction between accrued expenses and accounts payable is a single fact, whether a supplier invoice exists yet, and getting it right is most of what a clean month-end close is about.
The difference in one sentence
Accounts payable is money you owe for goods or services you have been invoiced for. Accrued expenses (also called accrued liabilities) are money you owe for goods or services you have received but have not yet been invoiced for.
| Accounts payable | Accrued expenses |
|---|
| Supplier invoice received? | Yes | Not yet |
| Amount | Exact, from the invoice | Often estimated |
| How it is recorded | Posting the invoice | A journal entry or an automatic accrual |
| Typical lifetime | Until paid, usually 30 to 60 days | Until the invoice arrives, often days or weeks |
| Balance sheet | Current liability | Current liability |
Why accrued expenses exist at all
Under accrual accounting, an expense belongs in the period in which it was incurred, not the period in which someone sent a bill for it. Electricity used in March is a March cost even if the utility bills in April. Without an accrual, March profit is overstated and April's is understated, and neither month tells you what the business actually spent.
Businesses that account on a cash basis do not accrue. Most companies past a certain size, and every company reporting under GAAP or IFRS, do.
Common examples
- Goods received not invoiced. Stock or materials delivered against a purchase order before the supplier bills. This one has its own name, GRNI, and in most purchasing systems it is posted automatically from the goods receipt.
- Services received. Consultants, contractors, cleaning, maintenance: work done this month, invoiced next.
- Utilities and telecoms billed in arrears.
- Wages and salaries earned but not yet paid at period end, plus the related payroll taxes.
- Interest accrued on a loan between payment dates.
- Bonuses and commissions earned in the period but paid later.
The journal entries
A contractor finishes 4,000 of work on 28 March. The invoice arrives on 9 April.
| Date | Entry | Debit | Credit |
|---|
| 31 March | Accrue the expense | Professional fees 4,000 | Accrued expenses 4,000 |
| 1 April | Reverse the accrual | Accrued expenses 4,000 | Professional fees 4,000 |
| 9 April | Post the invoice | Professional fees 4,000 | Accounts payable 4,000 |
| Payment date | Pay the supplier | Accounts payable 4,000 | Cash 4,000 |
The reversing entry on the first day of the new period is what lets the invoice be posted normally, without anyone remembering that an accrual exists. The net effect in April is nil, March carries the cost, and accounts payable only ever contains real invoices.
Purchase order accruals work differently: the GRNI accrual is cleared line by line when the matching invoice is posted, rather than reversed in bulk. That is why receipting accurately against PO lines matters, and why a three-way match keeps the accrual honest.
Where accruals go wrong
- Accruals that are never reversed, so the expense is counted twice when the invoice arrives.
- Estimates nobody revisits. A standing monthly accrual for a service that ended months ago.
- Spend without a purchase order. If nothing records the commitment, finance only learns about it from the invoice, which is too late to accrue. This is the strongest argument for raising purchase orders for services, not only for goods.
- Late receipting. Goods delivered on the 30th and receipted on the 3rd fall out of the right period entirely.
Common questions
Are accrued expenses a liability or an expense?
Both sides of the same entry. The expense goes to the income statement for the period; the accrued expense balance is a current liability on the balance sheet until the invoice arrives.
Is GRNI an accrued expense?
Yes. GRNI is the accrued liability for goods received against purchase orders but not yet invoiced. It is usually kept in its own account because it is generated from receipts and cleared by matching invoices, rather than estimated by hand.
Do accrued expenses need an invoice?
No. That is the point of them. They are based on evidence that the cost was incurred, such as a goods receipt, a timesheet, a contract or a meter reading, and estimated where the exact amount is not yet known.
What is the difference between accrued expenses and prepaid expenses?
They are opposites. An accrued expense is incurred before it is paid (a liability). A prepaid expense is paid before it is incurred (an asset), such as annual insurance paid in advance.
The short version
If there is an invoice, it is accounts payable. If the cost has been incurred and there is no invoice yet, it is an accrued expense. Accrue at period end from the best evidence you have, reverse the accrual on the first day of the next period, and get commitments onto purchase orders so the evidence exists before the invoice does.