Expense
The cost incurred in operating a business, such as rent, utilities, and salaries.
An expense is any cost a business incurs during operations to generate revenue. Expenses can be classified as fixed (constant regardless of activity, like rent) or variable (changing with volume, like shipping). Proper expense tracking and categorization is critical for calculating profitability, preparing tax returns, and identifying cost reduction opportunities.
Example
A yoga studio incurs monthly expenses of $3,000 rent, $800 utilities, $1,200 instructor wages, $400 marketing, and $200 supplies—totaling $5,600 subtracted from revenue.
Why It Matters for Your Business
Every dollar you spend is a dollar less in profit, so categorizing and monitoring expenses reveals where you can cut costs to improve your bottom line.
Practical Tips
- •Categorize expenses consistently so monthly comparisons are meaningful.
- •Review subscriptions and recurring charges quarterly—many businesses pay for tools they no longer use.
- •Separate essential from discretionary expenses to know where to cut first if cash gets tight.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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