Accrued Expenses vs. Prepaid Expenses: Key Differences and Journal Entry Examples

An accrued expense is a cost incurred but not yet paid, such as unpaid employee salaries. It is recognized as an expense and a liability. A prepaid expense is a payment for benefits to be received in future periods, such as advance rent, and is initially recorded as an asset.

For example, unpaid salaries of 3,000 create an expense and liability, while annual prepaid rent of 12,000 is generally recognized as an expense at 1,000 per month. Proper adjustments improve financial accuracy. Try Cash Cloud for free to explore accounting and financial reporting tools.