An expense refers to the cost incurred by an individual, organization, or entity to acquire a good, service, or asset, or to maintain day-to-day operations. Expenses represent outflows of money or resources and directly affect overall financial performance.
Expenses can be broadly categorized into two types: operating and non-operating. Operating expenses relate directly to core business activities. Examples include salaries, rent, utilities, supplies, and maintenance. Non-operating expenses aren’t directly tied to main business operations and include interest payments, losses from asset sales, or legal settlements.
Tracking expenses accurately is essential for organizations and individuals alike. It ensures efficient budgeting, effective cost control, and better financial management. Clearly distinguishing between expenses and investments can aid in accurate financial reporting and tax implications.
Businesses record expenses in financial statements, particularly the income statement, to evaluate profitability. By carefully monitoring and managing expenses, organizations can identify areas for cost-saving and improved efficiency, ultimately supporting sustained growth and financial stability.
In short, expense management is critical—properly understanding and controlling expenses strengthens overall financial health and performance.
