Expenses are costs that are incurred by individuals or companies in exchange for something of value. For individuals, expenses can include daily transactions such as paying rent, utility bills, and groceries. For companies, expenses are the costs of operations that are incurred to generate revenue. Expenses can be categorized in a variety of ways, such as fixed expenses (e.g. rent or mortgage) that do not change with the change in production, and variable expenses (e.g. utilities and the cost of goods sold) that change with the change in production.
In accounting, an expense is any specific outflow of cash or other valuable assets from a person or company to another person or company. This outflow is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller. Expenses are used to calculate net income, which is calculated by subtracting expenses from revenues.
It is important to note that an expense is not the same as an expenditure. An expenditure is a payment or the incurrence of a liability, whereas an expense represents the consumption of an asset. For example, a company could make a $10,000 expenditure of cash for a fixed asset, but the $10,000 asset would only be charged to expense over the term of its useful life.
