How to Record Accrued Expenses in QuickBooks (and Reverse Them)

An accrued expense is a cost you have already incurred but have not yet been billed for or paid, such as December utilities that are not invoiced until January. On accrual-basis books you record it at period end with a journal entry that debits the expense and credits an Accrued Liabilities account (an other current liability), so the cost lands in the month it belongs to. The next month you reverse it, either with a reversing journal entry dated the first day or by coding the actual bill to the liability account. If you never reverse, the expense gets counted twice. QuickBooks will not reverse anything on its own, so the reversal has to be part of your close routine.

A contractor invoices six weeks late, the landlord bills quarterly, payroll for the last three days of the month pays out on the fifth. None of that changes the period the cost was incurred. Here are the mechanics: which account to build, what to post, how to reverse it, and what breaks when you skip the reversal.

What is an accrued expense?

An accrued expense is a cost you have incurred but not yet been billed for or paid. You consumed the service or took delivery of the work during the period, but no invoice arrived and no cash moved. Under GAAP's matching principle, the expense belongs in the period the cost was incurred, not the period the paperwork caught up.

The offset is a liability, because you owe the money even without an invoice in hand. It usually sits on the balance sheet as an other current liability named Accrued Liabilities or Accrued Expenses Payable. Larger businesses split it into named accounts such as Accrued Payroll, Accrued Interest and Accrued Professional Fees.

What expenses should I accrue at month end?

Accrue anything material that you used in the period but will not be billed for until after you close. For most small US businesses the recurring list is short: utilities, contractor and professional fees, payroll and payroll taxes earned but unpaid, interest on loans, bonuses and commissions, and rent when the billing cycle does not match the calendar month.

• Utilities. Electric, gas, water and telecom bills usually arrive two to four weeks after the service period.
• Contractor and professional fees. Your attorney works a matter in March and bills in May. Your 1099 subcontractor finishes on the 28th and invoices next month.
• Payroll and payroll taxes. Wages earned in the closing month but paid in the next one, plus the employer share of FICA and unemployment on those wages.
• Interest. Loans accrue interest daily but bill monthly or quarterly. Accrue the days that fall inside the period.
• Bonuses and commissions. Earned when the sale or the performance happened, even if paid out months later.
• Rent and periodic charges. Common with quarterly billing, percentage rent, or common area maintenance true-ups.

Set a materiality floor and stick to it. Accruing a $60 phone bill every month is busywork. Accruing a $14,000 legal invoice changes how the month reads. Pick a threshold with your accountant and apply it consistently.

How do I record an accrued expense in QuickBooks?

Create an other current liability account named Accrued Liabilities in your Chart of Accounts, then post a journal entry dated the last day of the period debiting the relevant expense account and crediting Accrued Liabilities. In QuickBooks Online that is + New, then Journal entry; in Desktop it is the Company menu, Make General Journal Entries. Date it the last calendar day of the month, not the day you sit down to do it.

Three details matter. The account type has to be Other Current Liabilities, not Accounts Payable: QuickBooks treats A/P as a system account tied to vendor bills and will demand a vendor name on any journal entry touching it. Put a memo on the entry naming the vendor and the period covered, because in six weeks nobody remembers what the $2,400 was for. And if the accrual repeats monthly, build it once as a recurring journal entry.

Accruals sit in the adjusting-entry stage of a normal close, alongside prepaids and depreciation. Our QuickBooks month end close checklist puts them in sequence with reconciliations and statement review.

What is the journal entry for accrued expenses?

Debit the expense, credit Accrued Liabilities, dated the last day of the period. Reverse it on the first day of the next period: debit Accrued Liabilities, credit the expense. When the real bill arrives you enter it normally to the expense account, and because the reversal already put a credit there, the net expense across the two months is correct.

Here is the full cycle for December utilities of $2,400 that are not billed until January 12.

Read the Utilities Expense line across the table: $2,400 of expense in December, then a credit and a debit in January that cancel out. December carries the cost, January carries nothing, Accrued Liabilities is back to zero.

The actual bill is entered the ordinary way, to the expense account, with no special handling. That is the appeal of the reversing method: whoever enters bills never needs to know an accrual existed, so the normal process for entering and paying a bill in QuickBooks applies unchanged.

How do I reverse an accrual in QuickBooks?

You have two options, and they are not equally safe. Option A is a reversing journal entry dated the first day of the next month that flips the original debits and credits. Option B is to code the actual bill to Accrued Liabilities instead of the expense account when it arrives, which clears the liability directly. Option A is cleaner and far less error-prone.

Option B only works if everyone who touches that bill knows to override the normal expense coding, including the fill-in bookkeeper and the bank feed rule that auto-categorizes that vendor to Utilities Expense. Miss once and you have an overstated expense plus a liability that never clears. Option A puts the correction in one place, on a known date, and survives staff turnover.

QuickBooks Online does not automatically reverse a standard journal entry. With accountant access, an entry marked as an adjusting journal entry offers a reverse option that creates the mirror-image entry on the first day of the following period. Without it, create the second entry by hand with debits and credits swapped and reference the original in the memo. Desktop is more direct: open an existing general journal entry, use the reverse function, and it builds the offsetting entry dated the first day of the next month.

What happens if you never reverse. The expense gets counted twice. December shows the accrual, January shows the bill, and Accrued Liabilities carries a permanent $2,400 balance nobody can explain. Repeat that across six vendors for a year and you have a phantom liability in the tens of thousands. The fix is simple: review the Accrued Liabilities balance every close. It should return to zero, or to the current month's fresh accruals, and never quietly accumulate. That review is also a standard step before you close the books for the year in QuickBooks.

What is the difference between accrued expenses and accounts payable?

Accounts payable is what you owe against an invoice you have actually received. An accrued expense is what you owe with no invoice yet, where you estimated the amount. Both are current liabilities, but A/P is documented by a vendor bill and accruals are your own judgment call.

That drives how they behave in QuickBooks. A/P is a system account fed by the Bill transaction, tied to a vendor, and shown on the A/P Aging report. Accrued Liabilities is an ordinary balance sheet account fed by journal entries, with no vendor subledger behind it. A/P clears when you pay the bill; Accrued Liabilities clears when you reverse. Keep them separate, because a lender or CPA wants to know which obligations are invoiced and which are estimated.

What is the difference between accrued expenses and prepaid expenses?

They are opposites in timing. An accrued expense is used first and paid later, creating a liability. A prepaid expense is paid first and used later, creating an asset. Accrue when the cash lags the cost, prepay when the cash leads it.

A year of insurance paid up front is a prepaid asset drawn down monthly as coverage is consumed, the pattern in the guide to recording prepaid insurance and business insurance premiums in QuickBooks. December utilities billed in January are an accrual. Same goal from opposite starting points.

Do I need accruals if I file taxes on a cash basis?

Not for the tax return, but often yes for management reporting. Cash-basis filing recognizes expenses when paid, so accruals get backed out for the return. That does not mean your monthly P&L should be cash-basis, not if you want to know whether a month was actually profitable.

Take a construction business whose January includes December's subcontractor invoices plus its own January costs. On cash basis January looks terrible and December looks great, and neither figure reflects what happened on any job site. Run accrual internally and let your CPA convert to cash for the return. QuickBooks makes this easy, since most reports toggle between cash and accrual basis in the report settings without changing what you posted.

Late-arriving costs are the ones that get missed on either basis. Payroll straddling month end is one, and the guide on recording payroll from a bank statement in QuickBooks covers splitting gross wages and employer taxes. Employee reimbursements are the other, and a system for capturing and categorizing receipts that arrive after the close keeps you from booking a January reimbursement for a November flight.

Getting the actual payments in so your accruals clear

An accrual only works if the real transaction eventually lands in QuickBooks with the correct date. If the January utility payment is entered in March, or dated March, Accrued Liabilities carries a stale balance and the reversal has nothing to net against.

If your bank sends PDF statements rather than a working feed, you can convert the PDF bank statement to a QuickBooks QBO file and import every payment with its real transaction date. That puts the actual checks, ACH debits and card charges into the right period, so accrued liabilities clear on schedule and the balance sheet does not carry an unexplained liability into next year. Reconcile, confirm Accrued Liabilities is back to zero, and the close is done.