Accrued Expenses vs Accounts Payable

The difference between accrued expenses and accounts payable is the invoice. Accounts payable is what you owe a supplier who has already billed you: the amount is known, the invoice is in hand, and the vendor is named. An accrued expense is what you owe for something you have already consumed but have not been billed for yet, so the amount is your best estimate. When the invoice arrives, the accrual reverses and the balance moves into accounts payable.

Last updated July 2026.

Both sit on the balance sheet as current liabilities, both increase with a credit, and both get lumped together in casual conversation as "stuff we owe". At month end, though, they behave completely differently, and mixing them up is one of the most common reasons a close gets reopened. This guide covers what each one is, the journal entries for both, how the handoff works when an invoice finally shows up, and the specific mistakes that cause auditors to ask questions.

What are accounts payable?

Accounts payable is the money a business owes suppliers for goods and services it has received and been invoiced for, but has not yet paid. The defining feature is that a valid invoice exists. You know the vendor, the exact amount, the invoice number, and the due date, because the supplier told you all four.

That certainty is what makes AP straightforward. There is no estimating. The invoice is entered into the ledger against the correct expense or asset account, it sits in accounts payable until the payment run picks it up, and it clears when the money leaves. The full sequence is laid out in our accounts payable process guide.

What are accrued expenses?

An accrued expense is a cost the business has already incurred but for which no invoice has arrived by the end of the accounting period. Accrual accounting requires the expense to be recognized in the period it was consumed, not the period the paperwork catches up. So you record it anyway, using an estimate, and you reverse the estimate once the real invoice lands.

Typical accrued expenses in a US business include wages earned in the last days of the month and paid in the next, electricity consumed in June and billed in July, interest that has accumulated on a loan but is not yet due, professional fees for work a law firm has performed but not billed, and cloud infrastructure used all month but invoiced in arrears. Finance teams that accrue cloud and SaaS costs before the bill arrives usually pull the number from a live view of what each account actually consumed rather than from last month's invoice, because usage-based spend rarely repeats.

Accrued expenses are sometimes called accrued liabilities. The terms are used interchangeably.

Accrued expenses vs accounts payable: the key differences

What is the journal entry for accounts payable?

When the invoice arrives, debit the expense (or the asset, if you are buying inventory or equipment) and credit accounts payable. Say a supplier bills you $4,000 for office supplies on June 20:

When you pay it in the July payment run, the payable clears:

More worked examples, including early-payment discounts and vendor credits, are in our accounts payable journal entry guide.

What is the journal entry for an accrued expense?

At period end, debit the expense and credit accrued liabilities for your best estimate. Suppose employees earned $18,000 in the last week of June, payable on July 5. On June 30 you record:

On July 1 most teams reverse that entry, so the accrual does not double-count when the real payroll posts:

Then the actual payroll runs on July 5 and hits wages expense for the real figure. June carries the cost it earned, July carries only the difference between the estimate and reality, and nothing is counted twice.

What happens when the invoice finally arrives?

This is the handoff that trips people up. An accrued expense is a placeholder. Once the supplier invoices you, the obligation becomes a normal payable and the accrual has to make way for it. There are two accepted mechanics.

Reversing entry method. On the first day of the new period, reverse the accrual. When the invoice arrives, book it the ordinary way: debit expense, credit accounts payable. Simple, and the AP clerk never has to know an accrual existed. This is the method most systems default to.

Direct clearing method. Leave the accrual on the books and, when the invoice arrives, debit accrued liabilities and credit accounts payable for the accrued amount, booking any difference to expense. This keeps a clean audit trail per accrual but requires someone to remember which invoices are matched to which accrual.

Say you accrued $2,500 for a June electricity bill and the actual invoice, received on July 12, is $2,680. Under the direct method:

The $180 difference lands in July. Small variances like this are normal and expected. Large, repeated variances mean your estimates need work.

Is accounts payable an accrued expense?

No. Both are accrued liabilities in the broad sense that accrual accounting created them, which is where the confusion starts. But accounts payable is a specific, invoiced obligation to a named supplier, and an accrued expense is an estimated obligation with no invoice behind it. Every accounts payable balance began life as a supplier document. Most accrued expenses never see one until after the books close.

Where do accrued expenses and accounts payable appear on the balance sheet?

Both sit under current liabilities, usually on separate lines. Accounts payable is listed first because it is normally the larger balance and the one readers care about most. Accrued expenses, sometimes labeled accrued liabilities, follows it. Smaller companies occasionally combine them into a single line such as "accounts payable and accrued liabilities", which is permitted so long as the amounts are not individually material.

Investors and lenders read the two differently. A rising accounts payable balance suggests the business is taking longer to pay suppliers, which you can measure with days payable outstanding. A rising accrued liabilities balance more often signals timing: a period that ended midway through a payroll cycle, or a large unbilled project.

What is the difference between accrued expenses and prepaid expenses?

They are opposites. An accrued expense is consumed first and paid later, so it is a liability. A prepaid expense is paid first and consumed later, so it is an asset. Annual insurance paid in January and used across twelve months is prepaid. Electricity used in December and billed in January is accrued. Both exist because accrual accounting insists the expense belongs to the period of consumption, not the period of payment.

Why does the distinction matter at close?

Three reasons, in order of how often they cause trouble.

Cutoff accuracy. If a June cost lands in July because nobody accrued it, June's profit is overstated and July's is understated. That is a cutoff error, and it is the single most common accrual finding in a small-company audit.

Double counting. If the accrual is never reversed and the invoice is later booked to accounts payable, the same expense hits the income statement twice and liabilities are overstated. Reversing entries exist precisely to make this hard to do.

Control coverage. Accounts payable is governed by matching, approval, and segregation of duties. Accrued expenses are governed by a spreadsheet and someone's judgment. Auditors test them differently for exactly that reason, and an accrual balance with no support is a much easier finding to write up than a payable with an invoice attached.

GRNI: the case that sits between the two

There is a middle category worth knowing. When goods have been delivered and receipted but the supplier invoice has not arrived, the liability is recorded as goods received not invoiced, or GRNI. It is technically an accrual, but unlike a wages accrual you have hard evidence for it: a goods received note showing exactly what arrived, and a purchase order showing the agreed price. The estimate is not really an estimate.

GRNI clears when the invoice arrives and passes three-way matching against the PO and the receipt. A GRNI balance that keeps growing usually means invoices are being lost before they reach AP, or receipts are being entered against the wrong PO lines. Either way it is a data problem, not an accounting one.

How to reduce the accruals you have to estimate

Every accrual you post is an admission that an invoice arrived too late, or never arrived at all. Some of that is unavoidable: payroll cycles and interest do not produce invoices. Much of it is fixable.

Chase the invoices that habitually miss cutoff. If the same three vendors bill on the 8th of the following month every single time, ask them to bill on the last business day instead. It costs one email.

Shorten the gap between the invoice arriving and the invoice being recorded. In many businesses the invoice was sitting in an inbox on the 28th and got keyed on the 4th, so it became an accrual for no good reason. Pulling the data off the document the day it lands, rather than at the end of the queue, removes the problem entirely. That is what invoice data capture software is for: the invoice number, dates, payment terms, tax, totals, and line items come off the PDF in seconds, so the bill is posted in the period it belongs to.

And review the accrual list itself each month. Standing accruals that were set up years ago for costs that no longer exist are surprisingly common, and they quietly distort the balance sheet until someone reads the schedule line by line. The AP aging report tells you about invoiced obligations; only the accrual schedule tells you about the rest.

Quick reference

The short version: if a supplier has told you what you owe, it is accounts payable. If you know you owe something but nobody has told you how much, it is an accrued expense. Everything else follows from that one question. For the wider vocabulary, including GRNI, cutoff, and the matching controls that sit around both accounts, see the accounts payable glossary, and for how the two liabilities relate to what customers owe you, read accounts payable vs accounts receivable.