ACCRUED COST Meaning and
Definition
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Accrued cost refers to an expense that has been incurred by a company during an accounting period, but has not yet been paid for or recorded in the financial statements. It is an accounting concept that recognizes expenses as they are earned or consumed, rather than when they are paid for.
Accrued costs are recognized as liabilities on a company's balance sheet because they represent obligations that the company has incurred, but has not yet settled. These costs can include various expenses such as wages, interest, taxes, utilities, and other operating expenses.
The concept of accrued costs is based on the matching principle in accounting, which states that expenses should be recognized in the same period that the corresponding revenues are recorded. By accruing costs, companies can more accurately report their financial performance and provide a more complete picture of their financial position.
Accrued costs are typically recorded in an adjusting entry at the end of an accounting period. This entry debits the appropriate expense account and credits a liability account such as "accrued expenses" or "accounts payable." Once the costs are paid, the liability is reduced, and the payment is recorded in the books as a decrease in cash or accounts payable.
Accrued costs are an important component of financial reporting and help provide a more accurate representation of a company's financial health and performance. They ensure that expenses are matched with the revenues they generate, which is crucial for accurately analyzing and evaluating a company's financial statements.
Common Misspellings for ACCRUED COST
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Etymology of ACCRUED COST
The word "accrued" derives from the Latin word "accrescere", which means "to grow" or "to increase". In accounting and finance, "accrued" refers to the accumulation or recognition of something over time, even if it has not been paid or received yet.
The word "cost" originates from the Latin word "costus", which means "expense" or "price". It refers to the amount of money or resources required to produce or acquire something.
When combined, the term "accrued cost" refers to an expense or cost that has been incurred but has not yet been paid or settled. It signifies expenses that have accumulated over a period and are recognized in the accounting records, even if the payment has not been made.
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