Change in Accrued Expense
Period-to-Period Movement in Accrued Liabilities
Change in Accrued Expense is the net increase or decrease in accrued liabilities (expenses incurred but not yet paid) during the reporting period. This line appears in the operating activities section of the indirect-method cash flow statement. A rise in accrued expenses adds to operating cash flow (you've delayed cash payment), while a fall subtracts (you're catching up on prior accruals).
What It Really Means
Accrued expenses are bills you've run up but haven't paid yet—like salaries earned this month but paid next, or interest accumulating on debt.
When these obligations grow, you're effectively getting an interest-free loan from employees, lenders, or suppliers—cash stays in your pocket longer, boosting operating cash flow.
When they shrink, you're paying off past accruals—cash goes out the door.
A Straightforward Example
Your company pays bonuses in January for the prior year's performance.
- End of Year 1: Accrue $5M bonus → Accrued Expenses up $5M
- Cash flow Year 1: +$5M Change in Accrued Expense (add-back)
- January Year 2: Pay $5M cash → Accrued Expenses down $5M
- Cash flow Year 2: -$5M Change in Accrued Expense
Year 1 OCF gets a boost; Year 2 takes the hit when cash actually leaves.
Common Drivers
- Year-end bonus or incentive accruals
- Interest accruing on debt
- Unpaid utilities, rent, or services
- Warranty or legal provisions
- Timing of payroll cycles
Seasonal businesses often see big swings around year-end.
How It Fits in Cash Flow
Indirect method operating section:
- Net Income
- + Non-cash expenses (depreciation, etc.)
- + Increase in Accrued Expenses (or − Decrease)
- = Cash from Operations
It's a working capital adjustment—bridging accrual profit to cash reality.
What a Change Tells You
- Rising accruals → conserving cash, possibly growing obligations
- Falling accruals → paying down past bills, cash outflow
- Year-end spikes → bonus timing or earnings management?
- Consistent increases → aggressive accrual policy
- Link to revenue growth (normal) or mismatch (concern)
Sharp drop after big buildup can signal cash crunch or reversal of aggressive accruals.
Key Takeaways
Change in Accrued Expense adjusts net income for timing of expense payments.
Increase adds to OCF (delayed cash out); decrease subtracts.
Common from bonuses, interest, unpaid bills.
Part of working capital changes.
Rising trend conserves cash but builds future obligations.
Watch year-end patterns for timing effects.
Change in Accrued Expense
Period-to-Period Movement in Accrued Liabilities
Change in Accrued Expense is the net increase or decrease in accrued liabilities (expenses incurred but not yet paid) during the reporting period. This line appears in the operating activities section of the indirect-method cash flow statement. A rise in accrued expenses adds to operating cash flow (you've delayed cash payment), while a fall subtracts (you're catching up on prior accruals).
Table of Contents
What It Really Means
Accrued expenses are bills you've run up but haven't paid yet—like salaries earned this month but paid next, or interest accumulating on debt.
When these obligations grow, you're effectively getting an interest-free loan from employees, lenders, or suppliers—cash stays in your pocket longer, boosting operating cash flow.
When they shrink, you're paying off past accruals—cash goes out the door.
A Straightforward Example
Your company pays bonuses in January for the prior year's performance.
- End of Year 1: Accrue $5M bonus → Accrued Expenses up $5M
- Cash flow Year 1: +$5M Change in Accrued Expense (add-back)
- January Year 2: Pay $5M cash → Accrued Expenses down $5M
- Cash flow Year 2: -$5M Change in Accrued Expense
Year 1 OCF gets a boost; Year 2 takes the hit when cash actually leaves.
Common Drivers
- Year-end bonus or incentive accruals
- Interest accruing on debt
- Unpaid utilities, rent, or services
- Warranty or legal provisions
- Timing of payroll cycles
Seasonal businesses often see big swings around year-end.
How It Fits in Cash Flow
Indirect method operating section:
- Net Income
- + Non-cash expenses (depreciation, etc.)
- + Increase in Accrued Expenses (or − Decrease)
- = Cash from Operations
It's a working capital adjustment—bridging accrual profit to cash reality.
What a Change Tells You
- Rising accruals → conserving cash, possibly growing obligations
- Falling accruals → paying down past bills, cash outflow
- Year-end spikes → bonus timing or earnings management?
- Consistent increases → aggressive accrual policy
- Link to revenue growth (normal) or mismatch (concern)
Sharp drop after big buildup can signal cash crunch or reversal of aggressive accruals.
Key Takeaways
Change in Accrued Expense adjusts net income for timing of expense payments.
Increase adds to OCF (delayed cash out); decrease subtracts.
Common from bonuses, interest, unpaid bills.
Part of working capital changes.
Rising trend conserves cash but builds future obligations.
Watch year-end patterns for timing effects.
Related Terms
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