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. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  4. Operating Earnings

    Profit earned after subtracting from revenues those expenses ...
  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. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  2. Are gross sales and taxable gross sales the same thing?

    The terms gross sales and taxable gross sales are not the same thing, and the difference can mean a huge difference in the ... Read Full Answer >>
  3. What is the difference between the loss ratio and combined ratio?

    The loss ratio and combined ratio are two ratios used to measure the profitability of an insurance company. The loss ratio ... Read Full Answer >>
  4. What is the difference between direct costs and variable costs?

    Direct costs and variable costs are expenses associated with production. Direct costs are expenses that can be directly traced ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
  7. 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 >>
  8. 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 >>
  9. 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. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  8. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  9. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  10. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!