Which term describes expenses incurred but not yet paid in cash or recorded?

• A. Accrued expenses
• B. Accrued revenues
• C. Inventories
• D. Deferred tax

Answer: (A)

In accrual accounting, expenses are recognized when the obligation is incurred, not when cash is paid. Accrued expenses are those obligations that have been incurred but not yet paid or recorded, so they show up as a liability and as an expense in the period when the cost occurred. A typical example is wages earned by employees at period end but paid in the next period; another is utilities used but not yet billed. This approach aligns costs with the period they help generate revenue (the matching principle). Accrued revenues involve revenues earned but not yet received, inventories are goods on hand (an asset), and deferred tax reflects timing differences in tax recognition, not unpaid expenses. Therefore, accrued expenses best describe expenses incurred but not yet paid or recorded.