What Is Accrued Liabilities?

Accrued liabilities are expenses you've incurred but haven't yet been invoiced for or paid. They sit on your balance sheet under current liabilities (things you owe within the next 12 months). The accounting term for booking an expense before the cash actually leaves is an accrual.

Accruals exist to keep your profit and loss statement (P&L) honest under accrual-basis accounting, the GAAP standard, which records expenses when you use them, not when you pay them. Without accruals, some months look amazing and others look terrible, even when the business is performing the same.

Common sources for ecommerce

• Payroll earned between paydays (always a partial-month accrual at month-end)
• Year-end bonuses building up month by month toward payout
• Sales tax collected from customers but not yet remitted to the state
• Marketing or agency invoices for work done, billed in arrears (invoice arrives 30+ days later)
• Utilities, rent, and insurance paid after use
• Returns reserve: money set aside for refunds you haven't paid out yet

A worked example

It's March 31 and you're closing the books. You pay your team on the 15th of every month for the prior month's work. By March 31, your team has already worked 16 days of March that won't be paid until April 15.

If a full month of payroll is $400K, you book a $215K accrued liability for those 16 days. Your March P&L now shows the full cost of the team working in March, even though the cash won't leave your bank until April. Your balance sheet picks up the $215K under current liabilities. That's a true picture of the month.

The most common mistake

Skipping accruals and only recording payroll when the cash actually moves on payday. Result: payroll-heavy months look unprofitable, payday-light months look amazing. Both pictures are wrong. During M&A (mergers, acquisitions, and fundraising), a buyer's Quality of Earnings (QofE) team will normalize your accruals, restate your EBITDA, and your valuation takes the hit.

The fix: set up automated accruals every month for at least four things, payroll, bonuses, sales tax, and any large invoices that come in arrears.

Related Terms

• What is deferred revenue?
• What are prepaid expenses?
• What is cash vs accrual accounting?
• What is revenue recognition?
• What is the allowance for doubtful accounts?

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Frequently Asked Questions

accrued liabilities vs accounts payable, what's the actual difference?

Accounts payable (AP) is for invoices you've received but haven't paid. Accrued liabilities is for expenses you've incurred but haven't been invoiced for. Example: your team works the last 6 days of the month before payday. No invoice exists, so it's accrued, not AP. Same money owed, different accounting treatment.

do i actually need to track accrued liabilities or is it just bookkeeping busywork?

Track them. They keep your monthly profit from swinging wildly, GAAP requires them, and a QofE team will check them the moment you go through M&A. Skip accruals and your valuation drops during diligence.

can people game accruals to make profit look better?

Yes. Under-accruing inflates EBITDA temporarily, over-accruing buries profit for later. Both break GAAP if the amount is material. Auditors and QofE teams check this carefully. Sloppy or aggressive accruals are a red flag for the rest of the financials.