An accrued expense, requiring a period-end adjusting entry, is best described as a cost that:
AWas paid in advance and is being used up over time
BHas built up over time but is not yet paid or recorded
CRelates to a fixed asset being depreciated each month
DWas received as cash before the related service was provided
Answer & Solution
Correct answer: B. Has built up over time but is not yet paid or recorded
1. Accruals record transactions in progress that have not yet been written down.
2. For an accrued expense, the cost is building up like a tab but is unpaid and unrecorded.
3. So B is correct.
4. A and C describe deferred expenses (prepayment, depreciation); D describes deferred revenue.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.5.1 "Accrued Expenses", p.80_