Expense Definition in terms of Accounting

Expense Definition in terms of Accounting

In accounting, an expense can be distinct as a cost; an outflow of money or other asset of worth; incurred throughout an exacting accounting time. An expense in accounting is the cash exhausted or expenditure incurred in an entity’s efforts to make revenue. Expenses signify the cost of doing business where doing trade is the sum entirety of the activities directed towards making revenue. It is the total spent in order to manufacture and sell the goods and services. For example, purchase of raw materials, payment of salaries, wages, etc.

Under the accrual method of accounting, an expense is reported on the income statement for the period when

1) the cost best matches the related revenues,

2) the cost is used up or expires, or

3) there is uncertainty or difficulty in measuring the future benefit.

Technically words, an expense is an incident where an asset is used up or a liability is incurred. With regards to the accounting equation, expenses efficiently decrease owner’s equity.