An expense is a cost incurred in the process of generating revenue. It represents the outflow of economic benefits during a period as part of normal business operations.
5 Must Know Facts For Your Next Test
Expenses are recorded on the income statement and reduce net income.
Common types of expenses include salaries, rent, utilities, and depreciation.
Expenses are typically categorized into operating and non-operating expenses.
To be recognized as an expense, it must be incurred and measurable within the accounting period.
Expenses decrease owner's equity as they represent costs that reduce profit.
Review Questions
Where are expenses recorded in financial statements?
What are two examples of operating expenses?
How do expenses affect owner's equity?
Related terms
Income Statement: A financial statement that shows a company's revenues and expenses over a specific period.
Revenue: The income generated from normal business operations, usually from the sale of goods and services.
Depreciation: The allocation of the cost of a tangible asset over its useful life.