Accrued Expenses: A Practical Month-End Review for Small Businesses

A month can look more profitable than it really was when the business received goods or services but the related invoice has not reached the books. An accrued-expense review looks for those timing gaps before reports are finalized.

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What an accrued expense represents

An accrued expense is a cost incurred in the current accounting period that has not yet been posted as an invoice or payment. Cornell University's year-end guidance similarly describes expense accruals as adjustments for expenses incurred but not yet posted to the general ledger. Its dates, forms and object codes apply to Cornell; a small business should use its own close calendar, accounts and approval rules.

Accrued expenses are not the same as ordinary accounts payable. A vendor bill that has already been entered usually belongs in accounts payable. An accrual addresses a cost that belongs in the period but has not yet been captured there. The exact treatment depends on the business's accounting basis, policies and facts.

Start with a defined cutoff

Set the report date and decide when the close will stop accepting ordinary bills for that period. Then search for evidence of goods or services received by the cutoff date, not merely invoices dated before it. Purchase records, receiving documents, contracts, time reports, recurring vendor history and conversations with department owners can reveal costs that have not yet reached accounting.

Keep cash-basis tax reporting separate from internal accrual-basis management reporting when they differ. Do not assume that an internal month-end accrual determines tax treatment.

Use a focused review

1. Check open purchases. Review goods received, services completed and purchase orders with activity near the cutoff.
2. Ask about unbilled services. Look for legal, consulting, maintenance, freight, utilities or contract labor already received.
3. Review recurring costs. Compare the current month with recent months for regular charges that are missing or unusually low.
4. Estimate from support. Use a contract, usage record, vendor confirmation or other reasonable basis. Retain the calculation and identify the preparer.
5. Apply the business's threshold. A written materiality or close policy can keep the process proportionate. Do not omit a known item merely to improve results.
6. Approve and record consistently. Use the appropriate expense and accrued-liability accounts, with a description and supporting documents.
7. Track the reversal or clearing entry. When the actual invoice posts, ensure the estimate does not leave a duplicate expense or liability.

Example: an invoice arrives next month

This is an invented example, not a client result. A contractor completes $4,800 of work by September 30 and invoices the business on October 8. For accrual-basis September reporting, the business may record the supported $4,800 expense and accrued liability in September, then clear the accrual when the October invoice is recorded.

If the final invoice is $5,050 because additional work was completed after September 30, the accounting should reflect the supported cutoff facts rather than forcing the estimate to equal the later invoice. The $250 difference requires review of timing and scope.

Avoid the duplicate-expense trap

An accrual process needs a clear owner and clearing method. If an accrual reverses automatically, confirm the invoice posts once and the reversal occurs in the intended period. If it is cleared manually, maintain an open-accrual schedule with the vendor, purpose, amount, service period, expected invoice date and resolution status.

Investigate old balances rather than rolling them forward indefinitely. A stale accrual may indicate a missing invoice, an unsupported estimate, a canceled obligation or a bill that posted elsewhere. Clear it only after the evidence supports the change.

Keep the close practical

Focus on items that could materially affect decisions and reports. Use a repeatable checklist, a named reviewer and a short close calendar. Automation can flag missing recurring charges or open receipts, but it does not determine whether a service was actually delivered or which period owns the cost.

Source and factual boundaries

Cornell University's Revenue and Expense Year-End Accruals defines accruals for its operations and describes its year-end entries and reversals. This primary source supports the timing concept; Cornell's procedures are not presented as requirements for small businesses. The checklist and example above are original Summer Peaks guidance. Source reviewed October 6, 2026. Accounting treatment depends on the reporting basis, policy, system, contracts and underlying facts.

Continue with the month-end close checklist or review vendor statement reconciliation.