Expense definition — AccountingTools

An expense is the reduction in value of an asset as it is used to generate revenue. If the underlying asset is to be used over a long period of time, the expense takes the form of depreciation, and is charged ratably over the useful life of the asset. If the expense is for an immediately consumed item, such as a salary, then it is usually charged to expense as incurred.

Examples of Expenses

Common expenses are the cost of goods sold, rent expense, wages expense, and utilities expense.

Accounting for Expenses

Under cash basis accounting, an expense is usually recorded only when a cash payment has been made to a supplier or an employee. Under the accrual basis of accounting, an expense is recorded as noted above, when there is a reduction in the value of an asset, irrespective of any related cash outflow.

The purchase of an asset may be recorded as an expense if the amount paid is less than the capitalization limit used by a company. If the amount paid had been higher than the capitalization limit, then it instead would have been recorded as an asset and charged to expense at a later date, when the asset was consumed.