What is an Accrued Liability?

Alexis W.
Alexis W.

Accrued liability is a debt that a person or company has acquired that has not yet been listed in the accounts payable ledger. A liability simply refers to a debt or an obligation. Liabilities are usually, but not always, financial in nature.

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Man climbing a rope

When a company does a balance sheet in accounting, the company lists both its assets and its liabilities. Assets refer to the things the company has that have value, such as inventories and monies owed to the company. Liabilities refer to the debts and obligations a company has, like accounts payable. In order to determine the value of a company, the liabilities are subtracted from the assets.

The balance sheet is updated on a periodic basis. Most companies update the balance sheet once per month. Some update that balance sheet quarterly, or once every four months. Before the balance sheet is updated, the company can incur liabilities. For example, a company may buy something on credit from a supplier. This purchase and the resulting debt is a liability the company has, but it has not yet been entered on the balance sheet.

Accrued liability is the term used to refer to all purchases that occur in between the times the balance sheet is updated. The liabilities are considered accrued because the money is owed, but they have not yet been posted. All accrued liabilities over the course of the period of time — the month or the quarter, for example — will normally be added to the balance sheet at the same time.

An accrued liability may happen on a regular basis, such as every month or every quarter. Recurring debts and obligations are classified as recurring accrued liabilities. These are typically budgeted for and anticipated.

A company or individual may also incur irregular, non-repeating or unexpected costs. If the company pays these costs on credit, then each is considered an accrued liability as well. These are typically referred to as either non-routine accrued liabilities or infrequent accrued liabilities.

Liabilities continue to be listed on the accounts payable until the debt is paid in full or the liability is satisfied. This can take a long period of time, depending on the terms of the credit arrangement. Thus an accrued liability can remain listed on a company's balance sheet for a long period of time after the initial purchase has been made, until it is paid in full.

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