What are expenses that have been incurred but not yet paid in cash called?

Accrued expenses represent costs that a business has incurred during an accounting period but has not yet physically paid. This accounting concept is based on the accrual basis of accounting, which emphasizes recording expenses when they are incurred, regardless of when the cash payment occurs. These expenses are recorded as liabilities on the balance sheet because they represent an obligation that the company must settle in the future.

This treatment is crucial for accurately reflecting the company’s financial position at a given time and ensuring that expenses are matched with the revenues that they help generate, adhering to the matching principle in accounting. Accrued expenses might include items such as wages payable, interest payable, or utilities that have been used but not yet billed.

Other terms provided, such as deferred expenses and prepaid expenses, refer to different accounting concepts; deferred expenses and prepaid expenses are payments made in advance for services or goods to be received in the future, thereby not fitting the definition of expenses incurred but not paid. Unpaid expenses could potentially describe accrued expenses in everyday language but do not represent the formal accounting terminology used in this context.