expenses

Expenses are outflows or using up of assets and incurrences of liabilities that reduce a business's net assets and are recognized on the income statement in the period in which they are incurred. In accrual accounting, expenses are matched to the revenues they help generate, reflecting the consumption of resources used to operate the business. They can be classified by function (such as selling, general and administrative expenses) or by nature (such as wages, depreciation, rent, and utilities).

Common categories include cost of goods sold, salaries and wages, rent, utilities, marketing, depreciation and amortization, interest, and taxes. Some expenses are cash-based; others are non-cash (notably depreciation and amortization) but still reduce reported income. Capital expenditures, by contrast, acquire or improve assets and are not expensed immediately; instead, they are capitalized and expensed through depreciation or amortization over their useful lives.

Expense management involves budgeting and monitoring to control costs and improve profitability. On tax and regulatory bases, many expenses are deductible, subject to limits and timing rules; some items are non-deductible. Understanding the pattern of fixed versus variable expenses informs forecasting and cash flow planning. The proper treatment of expenses affects financial statements, profitability, and decision making.