Question

What is the liability called that arises from an expense that the business has incurred but has not yet paid?

a) It is called a prepaid expense.
b) It is referred to as an accrued expense.
c) It is called a deferred expense.
d) It is known as an unearned expense.

Answer 1

An accrued expense is the liability that arises from an expense that has been incurred but not yet paid by a business, reflecting in the accounting period when it occurs.

Step-by-step explanation:

The liability that arises from an expense that the business has incurred but has not yet paid is referred to as an accrued expense.

This term represents the expenses recognized in the accounting period in which they occur, they are recorded on the income statement for that period, even though the payment has not been made. This is in accordance with the matching principle of accounting, which aims to match expenses with the revenues they help to generate.

Here is a quick overview of the other terms mentioned:

• A prepaid expense is a payment made for goods or services that will be received in the future.
• A deferred expense refers to an expense that has been incurred but will be reported as an expense in a future accounting period.
• An unearned expense is incorrect in this context as it actually refers to income received before the related goods or services are provided, thus it's a liability, but not related to expenses incurred.