Accrued expenses are recorded for which of the following reasons?

Accrued expenses are recorded for which of the following reasons?

• A. Expenses are only recognized after payment is made
• B. They reflect costs that have been incurred but not yet paid
• C. They record future liabilities
• D. They are solely for operational costs

Answer: (B)

Accrued expenses are recorded primarily to reflect costs that have been incurred but not yet paid. This accounting practice is rooted in the accrual basis of accounting, which acknowledges expenses when they are incurred, regardless of when the cash payment is actually made. This approach ensures that financial statements accurately represent a company’s obligations and financial position during a given reporting period. By recognizing these expenses in the period they are incurred, businesses can provide a clearer picture of their financial health and operational performance. This practice helps in matching expenses with related revenues, thereby providing a more accurate representation of profit during the reporting period. Additionally, accruing expenses is a critical part of financial management, allowing for proper planning and budgeting by identifying obligations that will need to be settled in the future.

Accrued expenses are recorded primarily to reflect costs that have been incurred but not yet paid. This accounting practice is rooted in the accrual basis of accounting, which acknowledges expenses when they are incurred, regardless of when the cash payment is actually made. This approach ensures that financial statements accurately represent a company’s obligations and financial position during a given reporting period.

By recognizing these expenses in the period they are incurred, businesses can provide a clearer picture of their financial health and operational performance. This practice helps in matching expenses with related revenues, thereby providing a more accurate representation of profit during the reporting period. Additionally, accruing expenses is a critical part of financial management, allowing for proper planning and budgeting by identifying obligations that will need to be settled in the future.