Are Accrued Expenses a Debit or Credit?
Accrued expenses are a credit. An expense incurred but not yet paid creates a liability, so the account increases with a credit and decreases with a debit when the bill is paid. Its normal balance is a credit, and it is reported on the balance sheet.
- Account category
- Liability
- Normal balance
- Credit (Cr)
- Increases with
- Increase (Cr)
- Decreases with
- Decrease (Dr)
- Financial statement
- Balance sheet
Classifying one account is easy. Ledger IQ classifies the whole trial balance.
Try it freeAccrued expenses on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 48,200.00 | |
| 1200 | Accounts receivable | 86,400.00 | |
| 1250 | Allowance for doubtful accounts | 4,200.00 | |
| 1300 | Inventory | 72,500.00 | |
| 1400 | Prepaid expenses | 9,800.00 | |
| 1450 | Notes receivable | 15,000.00 | |
| 1460 | Due from shareholder | 12,000.00 | |
| 1500 | Equipment | 120,000.00 | |
| 1510 | Accumulated depreciation | 38,000.00 | |
| 1700 | Goodwill | 40,000.00 | |
| 1710 | Accumulated amortization | 8,000.00 | |
| 2000 | Accounts payable | 31,500.00 | |
| 2050 | Credit card payable | 6,300.00 | |
| 2100 | Accrued expenses (the account this page is about) | 11,200.00 | |
| 2150 | Payroll liabilities | 7,400.00 | |
| 2200 | Sales tax payable | 4,100.00 | |
| 2300 | Unearned revenue | 18,000.00 | |
| 2400 | Notes payable | 85,000.00 | |
| 2450 | Due to shareholder | 20,000.00 | |
| 3000 | Common stock | 50,000.00 | |
| 3100 | Additional paid-in capital | 35,000.00 | |
| 3900 | Retained earnings | 92,000.00 | |
| 3950 | Shareholder distributions | 45,000.00 | |
| 4000 | Sales revenue | 550,000.00 | |
| 4100 | Sales returns and allowances | 12,000.00 | |
| 4200 | Interest income | 1,200.00 | |
| 5000 | Cost of goods sold | 240,000.00 | |
| 6000 | Salaries and wages | 96,000.00 | |
| 6050 | Officer compensation | 60,000.00 | |
| 6100 | Rent expense | 36,000.00 | |
| 6150 | Insurance expense | 14,400.00 | |
| 6300 | Depreciation expense | 19,000.00 | |
| 6450 | Interest expense | 6,800.00 | |
| 6900 | Other operating expenses | 28,800.00 | |
| Total | 961,900.00 | 961,900.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Other operating expenses | 11,200.00 | |
| Accrued expenses | 11,200.00 |
| Account | Debit | Credit |
|---|---|---|
| Accrued expenses | 11,200.00 | |
| Cash | 11,200.00 |
Why it works that way
An accrued expense is a cost the business has already incurred and not yet paid. The obligation exists, so there is a liability, and liabilities increase with credits. The debit side is the expense, recorded in the period that consumed the benefit.
It is the mirror of prepaid expenses. A prepayment is paid early and expensed later. An accrual is expensed early and paid later. Both exist so the income statement reports the period rather than the cheque book.
How it differs from accounts payable
The two are often lumped together, and the distinction is about documentation rather than substance.
Accounts payable holds vendor invoices that have arrived and been entered. Accrued expenses hold obligations with no invoice in hand: December utilities that bill in January, interest earned by the lender but not yet charged, legal work in progress, the bonus declared in December and paid in March.
On the return both land in other current liabilities, so the split matters less for presentation than it does for completeness. Accounts payable gets entered because an invoice arrives and forces the issue. Accruals only exist if somebody stops and thinks about them, which is why they are the most frequently missed year end entry on a small business trial balance.
The accruals worth checking on every engagement
- Wages and payroll taxes for days worked before year end and paid after it
- Interest on loans, particularly shareholder loans where no lender sends a statement
- Utilities, telephone and other services billed in arrears
- Professional fees for work performed in December
- Bonuses and commissions declared but unpaid
- Property taxes covering a period that straddles year end
Deductibility is not automatic
For an accrual basis taxpayer, a deduction generally requires that all events fixing the liability have occurred, the amount is determinable with reasonable accuracy, and economic performance has taken place. Booking an accrual does not by itself create the deduction.
Two traps come up constantly. An accrued bonus payable to a related party is subject to timing rules, and accrued compensation to a cash basis owner of a closely held company generally is not deductible until paid. The second is why a December bonus to a 100% shareholder, accrued and paid the following July, is usually a Schedule M-1 adjustment rather than a deduction.
Where it fits in the accounting equation
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 18, other current liabilities |
| Form 1120S | Schedule L line 18, other current liabilities |
| Form 1065 | Schedule L line 17, other current liabilities |
Common questions
Are accrued expenses a debit or credit?
A credit. The account is a liability, so it increases with a credit when the expense is recorded and decreases with a debit when the obligation is paid. A debit balance in accrued expenses usually means a payment was recorded against an accrual that was never set up.
What is the difference between accrued expenses and accounts payable?
Accounts payable holds invoices that have arrived. Accrued expenses holds obligations with no invoice yet, like December utilities billed in January or wages earned and not paid. Both are current liabilities and both go in other current liabilities on Schedule L.
Do accrued expenses reverse automatically?
Only if the entry was made as a reversing entry. Otherwise the liability sits on the books until the payment is applied against it. A stale accrual that was paid outside the system and never cleared overstates liabilities and understates the expense of the year the money actually went out.
Is an accrued bonus to the owner deductible in the year accrued?
Usually not for a closely held company where the owner is a cash basis taxpayer. The deduction generally waits until payment, which makes the accrual a Schedule M-1 adjustment in the year it is booked. The rules differ for unrelated employees, where a bonus paid within two and a half months of year end can often be deducted when accrued.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.