When accrual basis accounting matches an expense to a period before it is actually paid, an adjusting entry is necessary to record the accrued expense and corresponding liability.

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Accrual basis accounting recognizes expenses when they are incurred, not necessarily when they are paid. Therefore, when an expense is incurred but not yet paid, an adjusting entry is needed to properly record the expense and the corresponding liability.

When Accrual Basis Accounting Matches an Expense to a Period