Expenses

Definition

Expenses are the costs incurred by a business in the process of earning revenue. They are recorded on the income statement and reduce net income.

5 Must Know Facts For Your Next Test

1. Expenses decrease a company's net income on the income statement.
2. Operating expenses include costs like rent, utilities, and salaries.
3. Non-operating expenses might include interest payments and losses from investments.
4. Accrued expenses are those that have been incurred but not yet paid.
5. Depreciation is a non-cash expense that allocates the cost of an asset over its useful life.

Review Questions

• How do expenses affect net income on the income statement?
• What is the difference between operating and non-operating expenses?
• Can you give an example of an accrued expense?

Related terms

Revenue: The total amount of money earned by a business from its operations.

Net Income: The profit remaining after all expenses, taxes, and costs have been subtracted from total revenue.

Depreciation: A method to allocate the cost of a tangible asset over its useful life.