Accrued Expenses Journal Entry: Month-End Guide

What is an accrued expenses journal entry?

An accrued expenses journal entry records a cost that belongs to the current period even though the supplier invoice, payroll run, bank charge, or cash payment will arrive later. In plain accounting language: the business has already consumed the service, so the expense should not wait for the document.

That is the practical side of [accrual accounting](/learn/what-is-accrual-accounting). Under [IFRS](/glossary#ifrs), IAS 1 requires financial statements, except cash flow information, to be prepared using the accrual basis. The entry protects the [income statement](/glossary#income-statement) from being too high and the [balance sheet](/glossary#balance-sheet) from missing a liability.

The basic pattern is simple:

This is not a trick entry. It is a timing correction. If Riyadh Cloud Services used a full month of internet, security, and hosting support in June, June's accounts should show June's cost even if the supplier invoice arrives on July 4. The entry usually appears with other [adjusting entries](/learn/adjusting-entries-guide) during close, then reverses at the start of the next period so the real invoice can be processed cleanly.

When should you accrue an expense before month end closes?

Accrue an expense when three things are true: the service or benefit has already been received, the amount can be estimated with reasonable support, and the cost belongs to the reporting period you are closing. If one of those points is missing, slow down.

A Saudi or Gulf month-end file often includes accruals for:

• Utilities consumed before the meter bill is issued
• Salaries, overtime, or commissions earned before payroll is paid
• Audit, legal, or consulting work performed before the invoice arrives
• Loan interest incurred before the bank debit appears
• Cloud subscriptions or logistics services used before supplier billing

The evidence does not need to be perfect, but it should be reviewable. A contract, purchase order, timesheet, usage report, email confirmation, previous invoice run rate, or manager approval is usually better than a round number typed into the [general ledger](/glossary#general-ledger) because “we always accrue something.”

Do not accrue a budget just because the budget has unused room. Do not accrue next month's rent just because cash planning expects it. And do not use an accrual to hide a late invoice problem. A good [month-end close checklist](/learn/month-end-close-checklist) separates “missing invoice but service received” from “invoice exists but AP did not post it yet.” Those are different process issues, even if both create pressure near close.

How do you post an accrued expenses journal entry?

A clean accrued expenses journal entry has four steps. First, identify the cost that belongs to the period. Second, choose the expense account that reflects the nature of the cost. Third, credit a clear liability account such as Accrued Expenses Payable. Fourth, add enough description and support for the reviewer to understand why the estimate is reasonable.

Worked example 1: Riyadh Logistics Co. closes June on June 30. The warehouse used electricity throughout June, but the utility invoice normally arrives in the first week of July. Based on the meter reading and the last three months, the finance team estimates June electricity at SAR 18,600.

On July 1, the accountant posts a reversing [journal entry](/glossary#journal-entry):

When the actual invoice arrives for SAR 19,050, AP records the invoice normally in July. The net July expense is only the difference between the estimate and the actual bill: SAR 450. June carried the cost it had already consumed, and July did not double-count the same month of electricity.

Worked example: payroll accrual for a Riyadh services firm

Worked example 2: Najd Consulting LLC pays employees on the 5th of each month. At June 30, five working days of June salaries have been earned but not yet included in the July payroll payment. HR confirms the unpaid June gross salary portion is SAR 42,000. The accountant wants June profit to include the cost of the work performed in June.

The accrual at June 30 is:

The reversal on July 1 is:

Then the July payroll entry records the full approved payroll from the payroll system. If employer contributions are also calculated at month end, keep them in a separate supported calculation. The existing [GOSI contributions journal entries](/learn/gosi-contributions-accounting) guide is a better place for that payroll-specific split.

The important point is not the account name. It is the cut-off logic. Employees worked before the month ended, so the cost belongs before the month ended. If you wait until cash leaves the bank, the June report understates expenses and overstates profit.

How does an accrued expenses journal entry affect financial statements?

The entry affects two statements at once. The debit increases an expense in the period that received the service. That lowers profit in the [income statement](/learn/income-statement-explained). The credit records a short-term obligation in the statement of financial position, so liabilities are not understated before the invoice is posted.

It does not affect cash when you first record it. That is why new accountants sometimes feel the entry is “not real.” But financial statements are not only a cash diary. A company can owe salaries, utilities, interest, and professional fees before cash moves. The accrual tells the reader that the obligation already exists.

It also keeps the [trial balance](/learn/trial-balance-guide) disciplined. Total debits still equal total credits, and the account mapping is visible for review:

If the amount is material, reviewers should check the estimate, reversal, and later invoice match. If the amount is small, the team may decide not to accrue it under the company's materiality policy. But that should be a policy decision, not a habit of ignoring inconvenient cut-off work.

Accrued expense, accounts payable, or provision?

Students often mix three nearby ideas: accrued expense, accounts payable, and provision. The difference is not just vocabulary.

An accrual is usually routine and short-term. You know the electricity, salaries, or interest relate to the month. You are estimating the amount until the final document arrives. Accounts payable is more document-driven: the invoice is already in hand, so the liability is no longer just an estimate.

A [provision](/glossary#provision) needs more judgment. IAS 37 deals with obligations of uncertain timing or amount, and the standard focuses on whether a present obligation exists and how to measure the best estimate. That is why a warranty obligation, restructuring obligation, or legal claim belongs in the [provisions vs contingent liabilities](/learn/provisions-contingent-liabilities-ias-37) discussion, not in a simple accrued utilities entry.

The practical test is this: if the invoice is just late, think accrual or AP. If the obligation itself is uncertain, stop and evaluate the IFRS recognition criteria.

Common mistakes with an accrued expenses journal entry

The most common mistake is forgetting the reversal. Without a reversal, the next invoice may create a second expense for the same service period. The close file looks fine on June 30, but July suddenly carries both the reversal problem and the real invoice.

Watch for these issues:

• Accruing a budget instead of a service already received
• Crediting the supplier account even though no invoice exists
• Forgetting to reverse the entry on day one of the next period
• Leaving old accruals open after the invoice has been posted
• Using vague descriptions such as “monthly accrual” with no support
• Recording tax or recovery amounts before the evidence supports them
• Mixing routine accruals with IAS 37 provisions

Another common error is choosing the wrong expense account. If the cost is warehouse electricity, do not bury it in “other expenses” just because the amount is estimated. The estimate may be temporary, but the classification should still be meaningful.

Finally, do not let accruals become a private spreadsheet outside the accounting system. If a controller keeps the only schedule on his laptop, a new accountant cannot trace what happened. Accruals should reconcile to the ledger, reverse cleanly, and leave enough evidence for audit, management review, or exam practice.

How should you practice accrued expenses journal entries?

To learn accrued expenses properly, practice the whole workflow rather than only the first debit and credit. Start with a short business fact pattern, decide whether the service was received, estimate the amount, post the accrual, reverse it, then record the actual invoice. That sequence is what real close work feels like.

A useful practice set should include at least three variations:

• A utility accrual where the actual invoice is close to the estimate
• A payroll accrual where the payment happens after month end
• A professional-fee accrual where the invoice arrives late and differs from the estimate

For entry-level Saudi learners, this topic connects naturally to the cut-off and adjustment skills tested before a first accounting role. If you are preparing for [SOCPA's Accounting Technician exam](/prep/cat), do not memorize the words “debit expense, credit liability” in isolation. Practice deciding whether an accrual exists, which account should carry it, and how the reversal avoids double-counting.

Accountery practice exercises are built for that kind of repetition. You can record the [journal entries](/learn/how-to-record-journal-entries), check whether debits and credits balance, see how the entry moves through the ledger, and repeat until month-end accruals feel like normal accounting work instead of a closing-day surprise.