Accrued means something has been earned or owed but not yet paid. The term shows up most often in accounting, finance, and employment, and in each context it describes the same basic idea: a financial obligation or benefit has built up over time, even though no money has changed hands yet. Understanding how accrual works helps you read pay stubs, loan statements, financial reports, and benefits summaries with more confidence.
Accrued in Everyday Terms
Think of accrued as “accumulated but waiting.” If you work two weeks before payday, you’ve accrued wages during those two weeks. Your employer owes you that money even though you haven’t received a check yet. The same logic applies to interest on a savings account, vacation days you earn each pay period, or a utility bill that covers a month of service before the invoice arrives.
The word comes from the Latin “accrescere,” meaning to grow. That growth element is key. Accrued amounts increase gradually, day by day or period by period, until they’re eventually settled with a payment.
How Accrual Works in Accounting
In business accounting, “accrued” has a precise meaning tied to how companies record their finances. Under accrual accounting, revenue is recorded when it’s earned and expenses are recorded when they’re incurred, regardless of when cash actually moves. This is the standard method for most businesses and is required for publicly traded companies.
A simple example: a consulting firm finishes a project for a client in March but doesn’t get paid until April. Under accrual accounting, the firm records that revenue in March because that’s when the work was completed and payment was reasonably expected. The same principle applies in reverse. If a company receives office supplies in January but doesn’t pay the invoice until February, the expense is recorded in January because that’s when the supplies were received and the obligation was created.
This approach exists so that financial statements reflect what actually happened during a given period. Without it, a company could look wildly profitable one month and broke the next, simply because of payment timing rather than real business activity.
Common Accrued Expenses
On a company’s balance sheet, accrued expenses (also called accrued liabilities) represent costs that have been incurred but not yet paid. Typical examples include:
- Wages and salaries: Employee pay that has been earned but won’t be disbursed until the next payroll date.
- Interest on loans: Interest that accumulates daily on outstanding debt between scheduled payment dates.
- Utilities: Electricity, water, or gas consumed during a billing period before the bill arrives.
- Taxes: Income, property, or payroll taxes that a company owes but hasn’t yet remitted to the government.
- Warranties: Estimated costs for product repairs or replacements the company expects to honor.
These show up as liabilities because the company has an obligation to pay, even if no invoice has arrived yet.
Cash Basis vs. Accrual Basis
The alternative to accrual accounting is cash basis accounting, where revenue is recorded only when payment is collected and expenses are recorded only when they’re paid. If a company gets an invoice for services in January but pays in February, cash basis accounting records the expense in February. Accrual accounting records it in January. Small businesses and sole proprietors sometimes use cash basis because it’s simpler, but it can paint a misleading picture of how a business is actually performing during any given period.
Accrued Interest on Loans and Investments
If you have a mortgage, student loan, car loan, or credit card, interest accrues on your balance every day. The amount you owe in interest grows continuously between your monthly payments. When your payment arrives, part of it covers the interest that has accrued since your last payment, and the rest reduces your principal balance.
This is why paying a loan off early saves you money. Every day you carry a balance, more interest accrues. If you make an extra payment, you reduce the principal, which means less interest accrues going forward.
Accrued interest also matters when buying bonds. Most U.S. corporate and municipal bonds use a convention called 30/360, which assumes every month has 30 days for calculation purposes. If you buy a bond between its scheduled interest payments (called coupon payments), you owe the seller the interest that has accrued since the last payment date. You calculate this by multiplying the number of days since the last coupon payment by the daily interest rate and the bond’s face value. You’ll get that interest back when the next coupon payment arrives, but you need to pay the seller for the portion they earned while holding the bond.
Accrued Vacation and PTO
In employment, “accrued” most commonly describes vacation time, sick days, or paid time off (PTO) that you gradually earn as you work. A typical setup might give you a certain number of hours per pay period. After six months, for instance, you might have accrued five days of vacation that you can then use.
There is no federal law requiring employers to provide paid vacation. The Fair Labor Standards Act does not require payment for time not worked, including vacations, sick leave, or holidays. These benefits are entirely a matter of agreement between you and your employer. However, many states have their own rules about what happens to accrued vacation time when you leave a job. Some states require employers to pay out any unused accrued vacation at termination, treating it like earned wages. Others allow employers to set “use it or lose it” policies. Your employee handbook or offer letter should spell out how your company handles accrual and payout.
When reviewing your benefits, pay attention to whether your PTO accrues from day one or only after a waiting period, whether there’s a cap on how much you can accumulate, and whether unused time rolls over into the next year.
Why Accrual Matters to You
Even if you never manage a general ledger, accrual affects your finances in practical ways. When you close on a home, the settlement statement includes accrued interest and accrued property taxes that need to be prorated between buyer and seller. When you check your student loan balance, the total payoff amount includes interest that has accrued since your last payment. When you negotiate a job offer, understanding how vacation accrues helps you evaluate the true value of a benefits package.
The core concept stays the same across all of these situations. Accrued simply means the amount has been building up over time and is owed, even if no payment has been made yet. Once you see that pattern, the term becomes straightforward no matter where it appears.