Expenses are costs that individuals or businesses incur in running their operations. An expense is an item requiring an outflow of money or any form of fortune in general to another person or group as payment for an item, service, or other category of costs. 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 can be categorized in a variety of ways. In accounting, there are two main categories of business expenses: operating expenses and non-operating expenses. Operating expenses are the expenses related to the companys main activities, such as the cost of goods sold, administrative fees, office supplies, direct labor, and rent. These are the expenses that are incurred from normal, day-to-day activities. Non-operating expenses are expenses that are not directly related to the companys main activities, such as interest expenses, taxes, and losses from the sale of assets.
Expenses can also be defined as fixed expenses, such as rent or mortgage, which do not change with the change in production, or variable expenses, which change with the change in production, such as utilities and the cost of goods sold.
Expenses are used to calculate net income, which is calculated by subtracting expenses from revenues. 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.
