Expense

AAA

DEFINITION of 'Expense'

1. The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an important indicator of a business's operations, there are specific accounting rules on expense recognition.

2. Money spent or costs incurred that are tax-deductible and reduce taxable income.

INVESTOPEDIA EXPLAINS 'Expense'

1. Expenses are the opposite of revenues. Examples of expenses include payments to suppliers, employee wages, factory leases and depreciation.

2. Tax authorities frequently have very specific regulations that allow people to deduct certain expenses if used for business-related activities. For example, a traveling salesperson is allowed to deduct traveling expenses (fuel expenses and car rental costs) as a business deduction, because those costs are an integral part of the job.

VIDEO

Loading the player...
RELATED TERMS
  1. Solvency

    The ability of a company to meet its long-term financial obligations. ...
  2. Home Office Expense

    Expenses incurred from the operation of a business or the performance ...
  3. Operating Earnings

    Profit earned after subtracting from revenues those expenses ...
  4. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  5. Selling, General & Administrative ...

    Reported on the income statement, it is the sum of all direct ...
  6. Income Statement

    A financial statement that measures a company's financial performance ...
RELATED FAQS
  1. What is the difference between an expense and a liability?

    A liability is a company's obligation or debt, such as money that must be paid, goods that must be delivered or services ... Read Full Answer >>
  2. Why does an investor need to look at the burn rate of companies in the internet sector?

    An investor needs to look at the burn rate of companies in the Internet sector because, while a burn rate measures how fast ... Read Full Answer >>
  3. What is the difference between fixed cost and total fixed cost?

    A fixed cost is a cost that remains the same and does not depend on the amount of goods and services a company produces. ... Read Full Answer >>
  4. Who benefits the most from prepaid expenses?

    Prepaid expenses benefit both businesses and individuals. Prepaid expenses are the types of expenses that are bought or paid ... Read Full Answer >>
  5. Where is the cost of living lowest in the U.S?

    Although the United States doesn't find itself on the top 10 list of Business Insider's "The Cheapest Places To Live," there ... Read Full Answer >>
Related Articles
  1. Investing

    What are Operating Expenses?

    An operating expense is any expenditure made for the purpose of operating a business. These expenses are the day-to-day costs that help keep the business going. Operating expenses are reflected ...
  2. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  3. Options & Futures

    Bloated Budget? How To Trim The Fat

    Blood, sweat and tears should belong in the gym, but your money deserves some training time too.
  4. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  5. Budgeting

    How Do Your Finances Stack Up?

    We look at the average consumer numbers, so you can get some perspective on how you spend your hard-earned dollars.
  6. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  7. Investing

    What's a Run Rate?

    Run rate is a term used to denote annualized earnings extrapolated from a shorter time frame. Management uses the run rate to estimate future revenues.
  8. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  9. Investing

    What are Direct Costs?

    Direct costs for finished goods refer to the items and services directly used in production. Other costs such as rent and insurance for the production site are indirect costs. These costs may ...
  10. Investing

    What is Contingent Liability?

    A contingent liability is an amount that might have to be paid in the future, but there are still unresolved matters that make it only a possibility. Lawsuits and the threat of lawsuits are the ...

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center