Expense

An expense is a decrease in an entity’s economic resources resulting from the consumption of assets or the incurrence of liabilities in the course of earning revenue. In accrual accounting, expenses are recognized on the income statement in the period in which the related revenue is earned or when the liability arises, following the matching principle. An expense is not the same as a cash outlay; a single payment may be an expense, a capital expenditure, or both depending on whether it relates to a current period cost or a long-term asset.

Common categories include operating expenses, such as rent, salaries, utilities, and depreciation, as well as the cost of goods sold (COGS) for goods sold to customers. Non-operating or other expenses include interest expense and losses not tied to normal operations. Capital expenditures create or extend the life of assets and are generally capitalized and depreciated or amortized over time rather than expensed immediately.

In tax terms, many business expenses are deductible from taxable income, though some items must be capitalized or are non-deductible. Proper expense management involves policies for approval, documentation, and reimbursement to control costs and ensure accurate financial reporting.

In personal finance, expenses describe cash outflows to acquire goods and services and are tracked for budgeting and financial planning. Distinguishing expenses from other outlays, such as investments or debt repayments, helps individuals assess spending, saving, and long-term financial health. Financial statements present expenses as line items on the income statement, contributing to the calculation of net income.