Accrued liabilities are financial obligations that a company has incurred during a specific accounting period but has not yet paid. These are expenses that have been recognized in the company’s accounting records before the cash payments have been made. Accrued liabilities are a fundamental aspect of accrual accounting, ensuring that expenses are recorded in the period they are incurred to accurately reflect the company’s financial position.
Accrued liabilities can be thought about as the bills that the company knows it has to pay but has not yet paid them. These could be for services or goods that the company has received by has not yet added. The bill is an obligation which is yet to be settled.
Accrued liabilities are important in financial analysis, budgeting, and planning in business as they provide a clear picture of the true financial obligations of the company at any given point in time. Recognizing these liabilities when they occur, rather than when they are paid, allows for more accurate financial reporting and analysis.
For example, A company receives utility services in December but doesn’t receive the invoice until January. The cost of these utilities is recorded as an accrued liability in December. In the same manner, Salaries for employees who have worked the last week of December but are paid in January are another example of accrued liabilities.
Source: A to Z of Economics by Dr. NC Raghavi Chakravarthy