Principles of Finance

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Expenses

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Principles of Finance

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.

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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?
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