Which items are typically accrued liabilities?

Which items are typically accrued liabilities?

• A. Compensation, audit and legal fees
• B. Utilities paid in advance
• C. Inventory
• D. Depreciation

Answer: (A)

Accrued liabilities are obligations for expenses that have been incurred but not yet paid by the end of the period. Compensation fits this because employees have earned wages, but payment may occur after the reporting date, creating a wages payable. Audit and legal fees likewise are expenses incurred for services received but not yet billed or paid, forming an accrual for those services. Utilities paid in advance are recorded as a prepaid asset, not a liability, because the company has paid for future utility usage. Inventory is an asset representing goods held for sale, not an obligation. Depreciation is a non-cash expense allocated over the life of a fixed asset and reduces the asset account (through accumulated depreciation) rather than creating a liability. So, the items typically accrued liabilities are compensation and audit and legal fees.

Accrued liabilities are obligations for expenses that have been incurred but not yet paid by the end of the period. Compensation fits this because employees have earned wages, but payment may occur after the reporting date, creating a wages payable. Audit and legal fees likewise are expenses incurred for services received but not yet billed or paid, forming an accrual for those services.

Utilities paid in advance are recorded as a prepaid asset, not a liability, because the company has paid for future utility usage. Inventory is an asset representing goods held for sale, not an obligation. Depreciation is a non-cash expense allocated over the life of a fixed asset and reduces the asset account (through accumulated depreciation) rather than creating a liability.

So, the items typically accrued liabilities are compensation and audit and legal fees.