Definition of expense accounts
Expense accounts are categories within the business's books that show how much it has spent on its day-to-day running costs.
A debit to an expense account means the business has spent more money on a cost (i.e. increases the expense), and a credit to a liability account means the business has had a cost refunded or reduced (i.e. reduces the expense).
Expense accounts in double-entry bookkeeping
In double-entry bookkeeping, there are five types of nominal accounts:
How debits and credits work for different accounts
To increase the amount in your business accounts, you need to debit some accounts and credit others. What you do depends on the kind of account you’re dealing with:
- for an income account, you credit to increase it and debit to decrease it
- for an expense account, you debit to increase it, and credit to decrease it
- for an asset account, you debit to increase it and credit to decrease it
- for a liability account you credit to increase it and debit to decrease it
- for a capital account, you credit to increase it and debit to decrease it
Where to find your expense accounts
Expense accounts appear on the business's profit and loss account.
FAQs
Expense accounts are records of the amount a company spends on day-to-day costs during a given accounting period. These accounts exist for a set period of time - a month, quarter, or year - and then new accounts are created for each new period.
What is the definition of an expense in accounting? ›
An expense is a cost that businesses incur in running their operations. Expenses include wages, salaries, maintenance, rent, and depreciation. Expenses are deducted from revenue to arrive at profits. Businesses are allowed to deduct certain expenses from taxes to help alleviate the tax burden and bulk up profits.
What is the definition of expenses quizlet? ›
Define expense. The costs of the resources a company uses to carry out its operations and generate revenues.
What is the simple definition of expense? ›
An expense is money spent to acquire something — expenses includes daily transactions everyone encounters (like paying a phone bill) and big purchases made by companies (like buying a new piece of machinery).
What is an example of an expense account? ›
Some common expense accounts are Cost of sales, utilities expense, discount allowed, cleaning expense, depreciation expense, delivery expense, income tax expense, insurance expense, interest expense, advertising expense, promotion expense, repairs expense, maintenance expense, rent expense, salaries and wages expense, ...
How to classify expenses in accounting? ›
The three major types are fixed, variable and periodic.
- Fixed expenses are those that don't change for the foreseeable future. ...
- Variable expenses are expenses such as utilities, which can change from month to month.
- Periodic expenses are ones that happen occasionally, like business travel or emergency car repairs.
According to the Internal Revenue Service (IRS), business expenses are ordinary and necessary costs incurred to operate your business. Examples include inventory, payroll and rent. Fixed expenses are regular and don't change much — things like rent and insurance.
What is the difference between cost and expense in accounting? ›
What is an expense? While a cost is generally a one-time payment, an expense is best described as an amount paid regularly towards ongoing business operations. These payments are important to a company's ability to generate revenues.
What is a word for expense? ›
(noun) in the sense of cost. Synonyms. cost. charge. expenditure.
What is the legal definition of expenses? ›
An expense is a cost incurred by a company through its operations to earn revenue. The expenses can be fixed, like rent and insurance, or variable, like labor or raw materials for production. Fixed expenses generally are costs that remain constant.
Explain to your kids that an expense is something you pay for. When you use your money to buy or use something, it is an expense. For instance, your rent or mortgage for your home is an expense.
What is the meaning of expenses and expenditures? ›
Expenses refer to the cost of goods or services that are used up in the process of generating revenue. Expenditure refers to the outflow of cash or other assets in order to make a purchase. Expenses are classified as either operating or non-operating. Expenditures can be classified as either capital or revenue.
What is expense in a sentence? ›
Malls flourished at the expense of small stores downtown. She acquired power at the expense of friendships. He argues that the tax cut will benefit the rich at the expense of the poor.
What is an expense summary? ›
An expense report contains a categorized and itemized list of expenses that were made on behalf of the organization. This report helps the employer or finance team determine what money was spent, what was purchased, and how much of the expenditure is approved for reimbursem*nt.
What is not considered an expense account? ›
Non-operating income or expenses: Income or expenses generated from activities that are not part of a company's primary business operations are recorded in Not an Expense Accounts. Examples include gains or losses from the sale of assets, investments, or subsidiary companies.
What are all expense accounts known as? ›
Answer. All expense accounts are known as temporary accounts, as they close at the end of the accounting period. Temporary accounts are closed at the end of an accounting period.
When to use an expense account? ›
Expense Account Examples
Most important expense accounts are fixed and they cover costs such as taxes, rent, utility bills, and salaries. Moreover, inventory costs, as well as hardware and software costs, are also necessary expenses a business has to account for.
