Key points
An accrued expense is a cost you have already incurred in the period but have not yet been invoiced for or paid, recorded as a current liability.
The entry debits the expense and credits accrued expenses; it is usually reversed on day one of the next period so the real invoice can flow through accounts payable.
Accrued expenses differ from accounts payable: AP is backed by a received invoice, while an accrual is an estimate built from usage, contracts or timesheets.
For usage-based and AI companies, unaccrued compute and model API costs are the most common reason gross margin looks better than it is.
Every accrual needs support an auditor can tie out, plus a true-up when the actual invoice arrives.
Accrued expenses in one paragraph
An accrued expense is a cost your company has incurred during a period but has not yet been billed for or paid by the period end. Under accrual accounting, you still record the cost in the month it was consumed. You do this with an estimate that sits on the balance sheet as a current liability, usually called accrued expenses or accrued liabilities. When the vendor's invoice arrives, the estimate is replaced by the actual amount.
Accrued expenses vs accounts payable
Both are short-term liabilities for things you owe. The difference is the evidence behind the number.
Question | Accrued expenses | Accounts payable |
|---|---|---|
Has an invoice been received? | No | Yes |
Where does the amount come from? | Estimate from usage data, contracts, timesheets or history | The vendor invoice |
Who usually books it? | Accounting team at month-end | AP process as invoices arrive |
What happens next period? | Reversed, then replaced by the invoice | Cleared when paid |
Typical examples | Cloud and model API usage, contractor hours, legal fees, bonuses, payroll earned but unpaid | Software subscriptions billed in advance, supplier invoices |
Read more on the invoice side in accounts payable.
Worked example: an October close
Illustrative only. Fieldnote AI, a fictional Series B company with usage-based pricing, closes October on November 3. Three vendors bill in arrears, so no invoices exist yet.
Cost | Support for the estimate | Accrual |
|---|---|---|
GPU inference provider | Provider usage dashboard for October | $84,000 |
Contract data labelers | 300 approved hours at $60 | $18,000 |
Outside counsel | Engagement letter and attorney estimate of hours worked | $12,000 |
Total | $114,000 |
October 31: record the accrual
Account | Debit | Credit |
|---|---|---|
Cost of revenue: inference compute | $84,000 | |
R&D: contract labeling | $18,000 | |
G&A: legal fees | $12,000 | |
Accrued expenses | $114,000 |
November 1: auto-reverse
Account | Debit | Credit |
|---|---|---|
Accrued expenses | $114,000 | |
Cost of revenue: inference compute | $84,000 | |
R&D: contract labeling | $18,000 | |
G&A: legal fees | $12,000 |
November 6: the inference invoice arrives at $86,500
Account | Debit | Credit |
|---|---|---|
Cost of revenue: inference compute | $86,500 | |
Accounts payable | $86,500 |
The reversal credit of $84,000 and the invoice debit of $86,500 leave a net $2,500 in November. That is the true-up for the October estimate. If the variance were large, you would investigate why the usage data and the invoice disagree. See reversing entries for how the mechanics work.
Why accruals decide your gross margin
Suppose Fieldnote AI recognized $400,000 of October revenue and already had a $36,000 hosting invoice in AP. With the inference accrual, cost of revenue is $120,000 and gross margin is 70%. Without it, cost of revenue is $36,000 and gross margin reads 91%. The next month then absorbs two months of compute and the margin collapses.
In usage-based businesses, compute costs scale with customer usage and often bill in arrears. That makes accruals the line between a margin you can price on and a number that swings with vendor billing dates. See SaaS gross margin for what belongs above the line.
Common mistakes at close and audit
Double counting. The accrual is not reversed, then the invoice is expensed again in the next month.
Stale balances. Accruals sit on the balance sheet for 90+ days with no invoice and no one owning them.
Accruing from the PO, not usage. A committed contract amount is not the cost incurred this month.
Wrong line. Compute that serves customers lands in operating expenses, which flatters gross margin.
No support. Round-number estimates with no usage report or timesheet attached fail audit testing.
Ignoring the small ones. Each accrual may be small, but twenty skipped accruals can add up to a material amount.
How to run accruals each month
Keep a recurring list of vendors that bill in arrears, with the data source for each estimate.
Pull usage data (cloud, model APIs, payments fees) as of the last day of the month.
Collect approved hours for contractors and estimates from law firms and other advisors.
Book one entry per vendor or cost type, coded to the right department and cost of revenue line.
Set the entry to auto-reverse on the first day of the next period.
When invoices arrive, compare them with the estimate and note the reason for any large variance.
Review the accrued expenses balance against a schedule that ties to the general ledger.
How Quanta handles it
Quanta connects to cloud bills and the customer's usage database, so compute accruals are built from the same usage that drives revenue. Quanta's in-house accounting team books and reviews the entries, and finance leads can ask about any accrual through the Quanta MCP in Claude and trace it back to its journal entry.
Quanta perspective
For AI and usage-based companies, the inference accrual is the most important estimate in the close. If it is booked from usage data and tagged to cost of revenue, gross margin is real; if it waits for the invoice, every margin conversation is off by a month.
Frequently asked questions
Are accrued expenses a liability or an expense?
Both sides are recorded. The cost hits the income statement as an expense, and the unpaid amount sits on the balance sheet as a current liability until the invoice is paid.
What is the difference between accrued expenses and accounts payable?
Accounts payable is supported by a received invoice. Accrued expenses are estimates for costs incurred before an invoice exists.
Do accrued expenses need to be reversed?
Most teams reverse them on the first day of the next period so the actual invoice can be booked normally. Without a reversal, you must manually clear the accrual against the invoice to avoid double counting.
How do you estimate an accrued expense with no invoice?
Use the best available data: vendor usage dashboards, approved timesheets, contract rates or the trailing average of past invoices. Keep that support with the entry for audit.
Is accrued payroll an accrued expense?
Yes. Wages, bonuses and payroll taxes earned by employees in the period but paid later are common accrued expenses.