What is Expense?

Expenses are the expenses that a company has to pay in order to make money. It is basically the money you need to spend to get something. As the saying goes, “you have to spend money to make money.” – What is Expense?

Businesses often have various expenses that they need to pay for. These expenses can include payments to suppliers, wages for employees, leases for factories, and the depreciation of equipment. To help reduce the amount of taxes they owe, businesses are allowed to deduct these expenses from their income when filing their tax returns. However, it’s important to note that the IRS has specific rules in place regarding which expenses can be claimed as deductions.

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One of the main goals of company management teams is to maximize profits. This is achieved by boosting revenues while keeping expenses in check. Slashing costs can help companies to make even more money from sales.

However, excessive expense reduction can also have negative consequences. For instance, reducing advertising expenses may lower costs, but it can also diminish the company’s visibility and hinder its ability to connect with potential customers.

How Expense is Recorded

Companies analyze their income and expenses in their income statements. Accountants use either cash basis or accrual basis to record expenses. With cash basis accounting, expenses are recorded when they are paid. On the other hand, with the accrual method, expenses are recorded when they are incurred.

For instance, when a business owner arranges for a carpet cleaner to clean the office carpets, a company following the cash basis records the expense upon payment of the invoice. On the other hand, with the accrual method, the business accountant would record the carpet cleaning expense when the service is provided. Expenses are typically recorded on an accrual basis to align with the revenues reported in accounting periods.

Types of Business Expenses

There are two primary types of business expenses in accounting:


An expense is a cost that businesses have when they run their operations. Expenses can be wages, salaries, maintenance, rent, and depreciation. These expenses are subtracted from revenue to calculate profits. Businesses can deduct specific expenses from taxes to reduce the tax burden and increase profits.