Expenses Definition In Accounting, Types & How to Record
Learn what expenses are in accounting, the different types of expense accounts, and how to record them. Discover why tracking business costs is essential for accurate financial reporting and profitability.
What Are Expenses in Accounting?
In accounting, expenses are the costs a business incurs while generating revenue. These accounting entries track the outflow of resources, such as cash or supplies, needed to operate.
Tracking expenses helps businesses control costs, calculate profit margins, and meet tax obligations.
By understanding and monitoring expense accounts, companies gain a clearer picture of overall financial health and can make informed decisions to improve profitability.
Examples of common expense accounts include rent, salaries, utilities, and office supplies. Just like other accounting entries, expenses are recorded systematically to ensure accurate financial reporting.
Types of Expenses
Expenses can be categorized as operating or non-operating, and as fixed or variable.
Operating expenses cover day-to-day business costs, such as wages and materials, while non-operating expenses include items like interest or losses on asset sales.
Fixed expenses remain consistent, like lease payments, whereas variable expenses, such as shipping costs, fluctuate with business activity.
How to Record Expenses
Recording expenses in accounting involves creating a debit entry to the relevant expense account and a corresponding credit entry, often to cash or accounts payable.
Properly documenting these accounting entries ensures that business costs are accurately reflected in financial statements.
