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Accrued expenses: recording costs before the bill is paid
An unpaid cost can belong in the period you are closing. An accrual schedule makes those costs visible while preserving the evidence behind each estimate and later payment.
This guide describes common bookkeeping practice, not a legal or regulatory requirement.
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General information, not legal or tax advice.
Identify services received before the cutoff
For accrual-method tax reporting, the IRS generally requires both a fixed liability that can be measured with reasonable accuracy and economic performance. For property or services purchased, performance occurs as the property or services are provided or the property is used. A purchase request alone does not tell your bookkeeper what has actually been delivered.
Sources: IRS Publication 538 (01/2022), Accounting Periods and Methods
Build a payroll and supplier accrual schedule
As a bookkeeping practice, list the supplier or employee cost, service period, supporting record and expected invoice. Payroll earned before a closing date deserves attention even when payday comes later. The IRS generally treats employee services as economic performance as the employee performs them. Use approved time records to support the estimate rather than copying a prior balance indefinitely.
Sources: IRS Publication 538 (01/2022), Accounting Periods and Methods
Post the liability and clear it deliberately
A common entry debits the relevant expense and credits an accrued liability. When the actual bill enters the books, reverse or clear the accrual so the cost is not recorded again. Compare the estimate with the invoice and explain any difference. Keep the original calculation, approval and clearing entry together; this is a workflow recommendation, not a prescribed tax entry.
Separate recurring estimates from tax exceptions
The recurring item exception has conditions beyond repetition. Economic performance must occur by the earlier of 8½ months after year-end or the timely return filing date, including extensions; consistent treatment and the materiality or income-matching test also matter. Workers’ compensation and tort liabilities have different payment-based performance rules and cannot use that exception. Ask your CPA to determine eligibility.
Sources: IRS Publication 538 (01/2022), Accounting Periods and Methods
Carry the liability into the next closing file
Publication 583 distinguishes closing income and expense accounts at tax year-end from keeping asset, liability and net worth accounts open. Reconcile the remaining accrued liability to unresolved items. Give your CPA a schedule of the items still outstanding and the evidence supporting their treatment.
Sources: IRS Pub 583
Sources: identify services received before the cutoff
Continue the closing review
Resolve the costs missing from your close
Tidwell helps organize accrual schedules and supporting entries, with tax timing decisions reviewed by your CPA.