What Is an Expense in Accounting?
Definition, examples, and how expenses reduce profit.
Home › Accounting Glossary › Expense
| Normal balance | Debit |
|---|---|
| Appears on | Income statement |
| Topic | Financial accounting |
Expense in plain English
An expense is a cost that is used up in the period to run the business. Buying a long-lasting machine is not an expense straight away. It becomes an asset, and its cost is spread through depreciation.
Worked example
A business pays 1,500 in salaries for the month.
| Account | Debit | Credit |
|---|---|---|
| Salaries expense | 1,500 | |
| Cash | 1,500 |
If revenue for the month was 6,000 and these were the only expenses, profit is 6,000 − 1,500 = 4,500.
- Expensing the full cost of equipment instead of capitalising it as an asset.
- Recording an expense only when it is paid. Under accrual accounting it belongs to the period in which it was incurred.
Frequently asked questions
What is the difference between an expense and expenditure?
Expenditure is any spending. An expense is the part of a cost used up in earning the period’s revenue.
Is an expense a debit or a credit?
An expense increases with a debit.
What is the difference between capital and revenue expenditure?
Capital expenditure buys long-term assets. Revenue expenditure covers day-to-day running costs and is charged as an expense.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.