Expenses: Definition and Examples
Accounting Basics
Explained Simply
Expenses appear on the income statement and are deducted from revenue to arrive at profit. Typical examples are salaries, rent, utilities, advertising, bank charges and interest. Cost of sales is the direct cost of the goods sold and is usually shown separately above gross profit. Spending on something that lasts more than a year, such as a vehicle or machinery, is capital expenditure: it is recorded as an asset and spread over its life through depreciation instead of being expensed in full. Paying a supplier does not always mean an expense: paying off a loan reduces a liability, while the interest on it is an expense. Whether an expense can be deducted for tax is a separate question from how it is recorded in the books.
Related Terms
- Income StatementAn income statement (also called a profit and loss statement) is a financial report that shows a business's revenues, expenses, and resulting profit or loss over a specific period.
- DepreciationDepreciation is the systematic allocation of a fixed asset's cost over its useful life, reflecting the asset's wear and tear, obsolescence, or decline in value.
- Fixed AssetA fixed asset (also called a non-current or tangible asset) is a long-term physical asset owned by a business that is used in operations and not intended for sale, such as buildings, vehicles, machinery, or equipment.
- RevenueRevenue is the total value of goods sold and services provided by a business during a period, before any expenses are deducted.
- Tax DeductionA tax deduction is an expense or contribution that the Income Tax Act allows you to subtract from your income, which lowers your taxable income.