Expense: Difference between revisions

An '''expense''' is an item requiring an outflow of [[money]], or any form of [[Wealth|fortune]] in general, to another person or group as payment for an item, service, or other category of [[cost]]s. For a [[leasehold estate|tenant]], [[renting|rent]] is an expense. For students or parents, [[tuition]] is an expense. Buying food, clothing, furniture, or an automobile is often referred to as an expense. An expense is a cost that is "paid" or "[[Remittance|remitted]]", usually in exchange for something of value. Something that seems to cost a great deal is "expensive". Something that seems to cost little is "inexpensive". "'''Expenses of the table'''" are expenses for [[dining]], refreshments, a [[Banquet|feast]], etc.

In [[accounting]], ''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. Technically, an expense is an event in which a [[asset|proprietary stake]] is diminished or exhausted, or a [[liability (accounting)|liability]] is incurred. In terms of the [[accounting equation]], expenses reduce owners' [[equity (finance)|equity]]. The [[International Accounting Standards Board]] defines expenses as:{{quote|...decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.<ref>IFRS Framework, F.70</ref>}}

In [[double-entry bookkeeping]], expenses are recorded as a [[debit]] to an expense account (an [[income statement]] account) and a [[credit (finance)|credit]] to either an asset account or a liability account, which are [[balance sheet]] accounts. An expense decreases assets or increases liabilities. Typical business expenses include salaries, utilities, depreciation of capital assets, and interest expense for loans. The purchase of a capital asset such as a building or equipment is not an expense.

When an expense is seen as a purchase, it alleviates this distinction. Soon after the purchase (that which was expenses holds no value), it is usually identified as an expense. It will be viewed as capital with life that should be [[Amortization (business)|amortized]]/[[depreciation|depreciated]] and retained on the [[balance sheet]] if it retains value soon and long after the purchase.

In investing, one [[controversy]] that mounted throughout 2002 and 2003 was whether companies should report the granting of [[stock option]]soptions to [[employee]]semployees as an expense on the [[income statement]], or should not report this at all in the income statement, which is what had previously been the norm.