What Are Accrued Expenses? Smart Cash Flow for Aussies in 2025

When it comes to managing your money—whether you’re running a small business, side hustle, or household—accrued expenses can make or break your cash flow. These often-overlooked liabilities are the backbone of good financial management in 2025, especially with rising interest rates and shifting tax rules putting pressure on budgets across Australia.

What Are Accrued Expenses?

Accrued expenses are costs that a business or individual has incurred but not yet paid for. Think of them as the bills you owe but haven’t received an invoice for—like wages earned by employees in the last days of June, or utilities used in May but billed in July. Under the accrual accounting method (required for most Australian businesses earning over $10 million, and optional for many others), these expenses are recognised when they’re incurred, not when the cash leaves your account.

• Examples: Unpaid wages, utility bills, loan interest, taxes, or supplier invoices for goods/services already delivered.

• Why it matters: Accrued expenses give you a truer picture of what you owe, helping you avoid nasty surprises and better plan for upcoming payments.

Accrued Expenses and the 2025 Tax Landscape

Staying on top of accrued expenses isn’t just good bookkeeping—it’s vital for tax compliance. In the 2025 financial year, the ATO has ramped up scrutiny on expense claims, especially for businesses claiming deductions on accruals. If you’re deducting accrued expenses, you must be able to prove:

• The expense was incurred by 30 June (end of the financial year).

• The goods or services were delivered—even if the invoice arrives later.

• The expense is not yet paid, but is recorded in your accounts as a liability.

For example, if your business receives a shipment of stock on 28 June but gets the invoice on 3 July, you can accrue the expense in your 2024/25 accounts and claim the deduction this year. The same logic applies to accrued wages for hours worked in June but paid in July.

Key 2025 update: The ATO’s new e-invoicing initiatives are making it easier to track and verify accrued expenses, but also increasing compliance risk for businesses that don’t record them accurately.

How Accrued Expenses Impact Cash Flow and Decision-Making

Accrued expenses are more than a technicality—they’re essential for real-world cash flow management:

• For businesses: Accurately tracking accrued expenses helps forecast future cash needs, avoid overdraft shocks, and time payments strategically. With 2025’s higher business loan rates, knowing your true short-term liabilities is more important than ever.

• For households: Recognising accrued expenses (like quarterly energy bills or annual insurance premiums) lets you set aside money ahead of time and avoid budget blowouts.

• For investors: Analysing a company’s accrued expenses can reveal hidden risks or opportunities—are they delaying payments to suppliers, or racking up interest?

Consider a Sydney café that accrues $8,000 in wages for the final week of June, plus $1,500 in utilities used but not yet billed. By recording these as liabilities, the owner gets a clear view of upcoming cash needs and avoids overstating profits for tax time.

Best Practices for Managing Accrued Expenses in 2025

• Use accounting software: Modern platforms like Xero or MYOB can automate accrual entries, flag due dates, and generate real-time liability reports.

• Review regularly: Don’t let accruals gather dust. Reconcile them against actual bills and payments each month to catch errors early.

• Document everything: The ATO’s digital audit trail requirements mean you need clear records of when goods/services were received—even if payment is pending.

• Train your team: Make sure staff and bookkeepers understand the difference between cash and accrual accounting, especially if you’re switching methods or expanding.