Expenses

Definition

Expenses are the costs incurred by a business to generate revenue. They are recorded on the income statement and reduce the net income of the company.

5 Must Know Facts For Your Next Test

1. 1. Expenses are categorized as either operating or non-operating.
2. 2. Operating expenses include costs like rent, utilities, and salaries.
3. 3. Non-operating expenses include items like interest expense and losses from asset sales.
4. 4. Expenses differ from liabilities; expenses are costs that have already been incurred, while liabilities are obligations to pay in the future.
5. 5. Depreciation is an example of a non-cash expense that reduces taxable income but does not involve an actual cash outflow.

Review Questions

• 1. What is the difference between operating and non-operating expenses?
• 2. How do expenses impact a company's net income?
• 3. Provide an example of a non-cash expense and explain its significance.

Related terms

Revenue: Money earned by a business from its normal business activities, usually from the sale of goods and services

Liabilities: Obligations owed by a company to creditors, which must be settled in the future through payment or provision of goods/services

Depreciation: The systematic allocation of the cost of a tangible asset over its useful life