Accrued Liabilities

Accounting Primer Topics

If you incur an expense prior to the period in which the cash is paid, a liability is created at that time. For example, if employees earn $1,000 in January but are not paid until February, the entity has an expense of $1,000 in January and a liability, Accrued Salaries, at the end of January. In February, when employees are paid, there is a $1,000 credit to Cash and a $1,000 debit to Accrued Salaries. The debit part of the entry cancels the liability. The entries are as follows:

In January

Dr. Salaries Expense

1,000

Cr. Accrued Salaries

1,000

In February

Dr: Accrued Salaries

1,000

Cr: Cash

1,000