Accrued expenses

Accrued expenses are costs that have been incurred but not yet paid or formally invoiced at the balance sheet date — accrued salaries, accrued interest, accrued professional fees, accrued bonuses. They represent a current liability on the balance sheet and a charge in the income statement. In financial due diligence, the completeness and accuracy of accrued expenses is a key quality of earnings indicator: under-accrued expenses inflate reported EBITDA, while excess accruals may represent cookie-jar provisions that mask true performance.

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Example: during the acquisition of a Swiss engineering firm, due diligence identifies CHF 280,000 of project completion bonuses contractually due to staff but not accrued at year-end. Restated into the normalised EBITDA, this reduces the valuation basis by CHF 280,000 and prompts a specific warranty in the SPA covering such obligations.

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Hectelion reviews accrued expense completeness as a standard step in every financial due diligence engagement.