Final answer:
Expense accruals are expenses incurred by a company but not yet paid, and are recorded as liabilities on the balance sheet to reflect future cash outflows for these obligations under accrual basis accounting.
Step-by-step explanation:
Expense accruals, also known as accrued liabilities, represent expenses that a company has incurred but has not yet paid by the end of an accounting period. These expenses may include services or goods that the company has received, but the supplier invoices have not yet been processed or paid. Accrual accounting requires these expenses to be recognized in the period in which they are incurred rather than when they are paid. This ensures that financial statements reflect all obligations up to that date, providing a more accurate picture of the company's financial position.
For example, if a company receives utility services in December but does not receive the invoice until January, the cost of the utilities would be recorded as an expense for December under the accrual basis of accounting. The expense accrual would be recorded on the balance sheet as a liability, representing future cash outflows required to settle these obligations.