Expense

Definition

An expense is a cost incurred by a business in the process of earning revenue. It represents the outflow of cash or other assets from the company.

5 Must Know Facts For Your Next Test

1. Expenses are recorded on the income statement and reduce net income.
2. Under accrual accounting, expenses are recognized when they are incurred, not necessarily when they are paid.
3. Expenses can be categorized into operating expenses and non-operating expenses.
4. A matching principle in accrual accounting requires that expenses be matched with related revenues in the same period.
5. Common types of expenses include salaries, utilities, rent, and depreciation.

Review Questions

• What is the difference between operating and non-operating expenses?
• How does accrual accounting treat expenses differently than cash accounting?
• Why is it important to match expenses with revenues in accrual accounting?

Related terms

Revenue: The income generated from normal business operations.

Income Statement: A financial statement that shows a company's revenues and expenses over a specific period.

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