Accrued expenses are defined as expenses incurred in one fiscal period but not paid until a later fiscal period. Which term describes this condition?

• A. Accrued expenses
• B. Prepaid expenses
• C. Depreciation
• D. Accrued revenues

Answer: (A)

Accrued expenses arise when you incur a cost in the current period but won’t pay it until a future period. Under accrual accounting, you record the expense in the period it helps generate revenue and also record a liability (accrued expenses or accrued liabilities) to reflect the amount you owe. This keeps expenses aligned with the revenues they relate to.

Prepaid expenses are opposite: you pay now for benefits you’ll receive later, so you record an asset that becomes an expense over time. Depreciation is the systematic allocation of a long‑term asset’s cost over its useful life, not a payment timing issue. Accrued revenues are revenues earned but not yet received, recorded as assets and revenue.