What are accrued liabilities?

Accrued liabilities refer to obligations that a company has incurred but has not yet paid or recorded in its financial statements. This situation typically arises when a company receives goods or services but has not yet made the payment for them by the end of the accounting period. These liabilities are recognized under the accrual basis of accounting, which aims to match expenses with the revenues they help generate within the same period, enhancing the accuracy of financial reporting.

For instance, if a company has employees who have worked during the last week of a reporting period but will not be paid until the following period, the company must record an accrued liability to reflect this obligation. This adjustment ensures that the expenses are recognized in the appropriate period, even if cash has not yet been disbursed.

Other options do not accurately describe accrued liabilities. Revenue received before it is earned, for example, pertains to unearned revenue, while assets that are expected to bring future economic benefits describe resources owned by the company. Funds allocated for future expenses refer to budgeting and planning rather than liabilities incurred.