Why accrued liability matters to a first-time founder
Accrued liabilities show amounts the business already owes even though no invoice or payment has arrived. They stop a founder from overstating profit or the resources available at a reporting date. Common examples are wages earned by staff, interest that has built up and services received but not yet billed.
Examples of accrued liability
A company uses KSh 400,000 of legal services in September, based on time records, but receives the invoice in October. In its September accounts, it records the cost and amount owed. When the invoice arrives, it clears the estimate and records any difference.
Common misunderstanding
An accrued liability is an amount owed on the balance sheet, not an expense itself, although recording one often also records a cost. It is not always the same as accounts payable, which usually covers supplier invoices already entered. Names and classifications can differ between accounting frameworks and companies.
When to use it
Use accrued liabilities at the end of a reporting period for significant amounts already owed but missing from normal processing. Estimate them from contracts, payroll data, usage or supplier information, then compare them promptly with actual invoices. Old balances may reveal a weak process or a wrong estimate.