What are accrued expenses?

Accrued expenses refer to costs that a company has incurred during a particular accounting period but has not yet paid by the end of that period. This concept is a key aspect of the accrual basis of accounting, which recognizes expenses when they are incurred, regardless of when the actual cash payment occurs.

For example, if a company has employees who have worked during the last week of March, but payday is not until early April, the wages for that last week are considered accrued expenses. This ensures that financial statements reflect the true economic activity of the company during the reporting period.

The other options do not accurately define accrued expenses. Prepaid expenses describe payments made in advance of receiving the services, while expenses related to future periods pertain to expenditures recognized before the actual service is provided. General operational expenses recorded yearly do not specifically capture the concept of expenses being incurred but not yet paid, as they could include various timing and accounting methods unrelated to the definition of accrued expenses.