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Expense: Definition and Meaning
Definition
An expense is a cost incurred in the course of earning revenue or operating a business.
Why It Matters
Expenses reduce profit when recognized under the applicable accounting method. Classifying expenses consistently helps management understand operating costs, compare results with budget, evaluate margins, and prepare reliable financial statements.
The timing of expense recognition may differ from the timing of cash payment. A prepaid cost may be expensed over time, while an accrued expense may be recorded before payment occurs.
Example
Rent, payroll, utilities, insurance, marketing, and office supplies are common business expenses.
Related Terms
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