Accrued expenses are costs your business has incurred but not yet been billed or paid for. They are recorded as current liabilities to accurately reflect your obligations.
Accrued expenses represent the flip side of prepaid expenses. When you have used a service or incurred a cost but have not yet received an invoice or made a payment, you need to record an accrual. Common examples include wages earned by employees but not yet paid (accrued wages), interest on loans that has accumulated but is not yet due, utilities consumed but not yet billed, and professional services received but not yet invoiced. Accrued expenses are essential for accurate financial reporting under accrual accounting because they ensure your expenses are matched to the period in which they were incurred, not when they are paid. At month-end or year-end, your bookkeeper should review all accrued expenses and create journal entries to record them. SortBooks learns from your past coding, so recurring expenses are suggested to the same accounts each period.
SortBooks helps with the bookkeeping behind accrued expenses by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing accrued expenses by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Accrual accounting records revenue when earned and expenses when incurred, regardless of when cash changes hands. It provides a more accurate picture of your financial position than cash accounting.
Current liabilities are debts and obligations your business must pay within 12 months. They include accounts payable, short-term loans, accrued expenses and tax payable.
Prepaid expenses are payments made in advance for goods or services you will receive in future periods. They are current assets that are expensed as the benefit is consumed.
A journal entry is a record of a financial transaction in the accounting system. It includes the date, accounts affected, amounts and a description of the transaction.
The month-end close is the process of finalising all accounting activities for a month, including reconciliation, adjustments and report preparation.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.