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How it works - the process
To understand the proper treatment of accrued expenses, it might be helpful to review fundamental accounting basics. When you accrue an expense, you debit the applicable expense account and credit accrued expenses. Expenses appear on your income statement, also known as your profit-and-loss statement.
Your accrued expense account appears on your balance sheet as a liability. At year-end closing, the expense accounts will be reset to a zero balance but your accrued expenses will not. The reason for this is related to the difference between balance sheet accounts and income statement accounts.
