What do accrued expenses refer to?

Accrued expenses refer specifically to expenses that a company has incurred during a specific accounting period but has not yet paid or recorded in its financial statements. This concept is rooted in the accrual accounting principle, which states that expenses should be recognized when they are incurred, not necessarily when payment is made.

By recognizing accrued expenses, businesses ensure that their financial statements accurately reflect their financial position and performance for the period. This prevents the understatement of expenses and ensures that matching principles are upheld, where expenses are matched with the revenues they help generate within the same accounting period.

In contrast, the first choice describes prepaid expenses, which are payments made before the expenses are incurred. The third and fourth choices refer to deferred expenses and future commitments, respectively, which do not align with the definition of accrued expenses.