Accrued expenses are ordinarily reported on the balance sheet as which?

• A. Assets
• B. Revenues
• C. Liabilities
• D. Equity

Answer: (C)

Accrued expenses arise when you’ve received goods or services but haven’t paid for them yet. Under accrual accounting, you record the expense in the period it helps generate revenue, even if cash will be paid later. Because there’s a future payment obligation, this creates a liability. On the balance sheet, that obligation shows up as a liability, typically a current liability if due within a year. The usual adjusting entry is to debit the expense and credit accrued liabilities (or accounts payable). When you pay, you debit the liability and credit cash. Accrued expenses are not assets, because they don’t provide future benefits; they aren’t revenues, since they’re costs; and they aren’t equity, since they’re obligations to third parties.