Final answer:
Accrued liabilities arise in connection with compensation expense when wages and salaries have been earned but not yet paid. They are recorded as a liability on the balance sheet and as an expense on the income statement.
Step-by-step explanation:
Accrued liabilities arise in connection with compensation expense at the end of an accounting period when wages and salaries have been earned by employees but have not yet been paid. In other words, these are the obligations a company has for compensation that it has incurred but has not yet paid out.
For example, if a company has a payroll period that ends on the last day of the month and pays its employees on the 10th of the following month, there will be a 10-day period between the end of the accounting period and the payment date. During this period, the company incurs liabilities for the wages and salaries earned by its employees. These liabilities are recognized as accrued liabilities in the company's financial statements.
Accrued liabilities are recorded as a liability on the balance sheet and as an expense on the income statement. The amount of the accrued liabilities is determined by multiplying the amount of wages and salaries that have been earned but not yet paid by the number of days between the end of the accounting period and the payment date.