What do accrued expenses represent in accounting?

Accrued expenses represent costs that a company has incurred during a particular accounting period but has not yet paid by the end of that period. This concept is crucial in accrual accounting because it ensures that expenses are recognized in the accounting period in which they are incurred, regardless of when the actual cash payment takes place.

For instance, if a company receives a utility bill for services that were utilized in March but doesn't pay the bill until April, the expense is recognized in March's financial statements as an accrued expense. Accrued expenses are recorded as liabilities on the balance sheet until they are settled with a cash payment. This accurate matching of expenses to the revenues they help generate is a fundamental principle of accounting, enabling a clearer view of a company's financial performance.