Accrued Liability in Australia: 2025 Guide for Business Owners

Every business that operates on an accrual accounting basis encounters the term ‘accrued liability’—but what does it really mean for your bottom line, especially as Australia updates its financial regulations in 2025? Accrued liabilities aren’t just an accounting technicality; they’re a crucial piece of your business’s financial puzzle, affecting everything from compliance to cash flow management.

Understanding Accrued Liabilities: More Than Just Numbers

An accrued liability is an expense your business has incurred but hasn’t yet paid or recorded as a bill. Think of it as a financial IOU—your business has received a service or benefit, but the cash hasn’t left your account. Examples include unpaid wages at the end of a pay period, interest on loans that hasn’t been paid yet, or utility bills for services already consumed but not yet invoiced.

• Unpaid Wages: If your staff work until 30 June but aren’t paid until July, those wages are an accrued liability at year-end.

• Interest Payable: Loan interest that has accrued but isn’t due until next month still counts as a current liability.

• Utilities: Electricity consumed in June, but billed and paid in July, should appear as an accrued liability on your 30 June balance sheet.

Accrued liabilities ensure your profit and loss reflects what’s really happening in your business, not just what’s been paid out. This gives you—and the ATO—a more accurate snapshot of your financial position.

2025 Updates: Compliance and ATO Reporting

In 2025, the Australian Taxation Office (ATO) continues its focus on accurate and timely reporting of accrued expenses, especially around year-end. Businesses using accrual accounting must ensure that all expenses incurred—whether invoiced or not—are included in their financial statements for the relevant period.

• ATO Crackdown: The ATO’s 2025 compliance program includes a renewed emphasis on correct accruals, especially for payroll and superannuation obligations. Failing to accrue for unpaid super or wages can lead to significant penalties.

• Single Touch Payroll (STP) Expansion: With STP Phase 3 fully in place, reporting of payroll liabilities—including accrued but unpaid wages—must be precise and timely. Any discrepancies can trigger ATO reviews.

• End-of-Year Processes: The ATO’s 2025 guidance highlights the need for accurate year-end accruals for tax deductibility. Expenses not properly accrued may be denied as deductions, impacting your taxable income.

Staying compliant isn’t just about ticking boxes. If your accrued liabilities aren’t accurate, your business risks misstating profits and potentially facing ATO scrutiny or audit.

Practical Tips: Managing Accrued Liabilities in Your Business

Effective management of accrued liabilities can strengthen your business’s financial health and reduce compliance headaches. Here’s how to stay on top in 2025:

• Regular Reconciliations: Set a monthly schedule to review and reconcile accrued expenses. This ensures nothing slips through the cracks at year-end.

• Automate Where Possible: Modern accounting software can track recurring accrued liabilities—like payroll, utilities, and loan interest—helping you avoid manual errors.

• Document Everything: Keep clear records of services received but not yet invoiced. This is especially important for audit trails and substantiating deductions.

• Engage with Your Accountant: Don’t wait until EOFY—touch base with your accountant throughout the year to review your accrual processes and ensure compliance with the latest ATO updates.

Real-world example: A Melbourne-based construction business with 40 staff needed to accrue $120,000 in unpaid wages and super at 30 June 2025. By maintaining a monthly accrual schedule, they avoided last-minute surprises and ensured their tax return was accurate—helping them pass an ATO review with flying colours.

Why Accrued Liabilities Matter for Your Cash Flow and Growth

Getting accrued liabilities right isn’t just about compliance. It can help you:

• Forecast Cash Flow: By tracking what’s owed but not yet paid, you’ll avoid nasty surprises and ensure you have funds available when bills come due.

• Support Business Growth: Accurate financials make it easier to secure finance or attract investors—both of whom will scrutinise your liabilities.

• Make Smarter Decisions: With a true picture of your financial obligations, you can plan investments, expansions, and staffing with confidence.