What is an expense?
An expense is an outflow or using up of resources in the course of earning revenue. Under the IFRS Conceptual Framework, expenses are decreases in assets or increases in liabilities that reduce equity, other than distributions to owners.
Expense vs expenditure vs cost
- Expenditure is spending money, which might buy an asset (for example, [capital expenditure](/glossary/capital-expenditure)).
- An expense is the portion consumed in the period and charged against profit.
- Cost is the broader term for resources given up.
Types of expenses
- [Cost of goods sold](/glossary/cost-of-goods-sold): directly tied to products sold.
- [Operating expenses](/glossary/operating-expenses): rent, salaries, marketing, admin.
- Non-operating expenses: interest, losses on asset sales.
- Non-cash expenses: depreciation, amortization, impairment.
- Fixed vs [variable](/glossary/variable-cost): whether they change with activity.
When to record an expense
Under the [accrual basis](/glossary/accrual-basis), expenses are recorded when incurred, not when paid. The [matching principle](/glossary/matching-principle) pairs them with the revenue they help earn.
Journal entry
Debit the expense account, credit cash, [accounts payable](/glossary/accounts-payable) or [accrued expenses](/glossary/accrued-expenses).
Why it matters
Accurate expense tracking shows true profitability, highlights cost-saving opportunities and supports [tax deductions](/glossary/tax-deduction).