Expenses Definition, Types, and Practical Examples

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Capital expenditures, commonly known as CapEx, are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment. However, if expenses are cut too much it could also have a detrimental effect. For example, paying less on advertising reduces costs but also lowers the company’s visibility and ability to reach out to potential customers.

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• An expense can also be an expenditure whose benefit is finished or enjoyed immediately or within the period of one accounting year.
• The cost of a long term asset, such as a building, is not expensed entirely in a single accounting period.
• Advertising expense is generally determined by adding all costs related to promotional and marketing activities over a given period.
• “Expenses of the table” are expenses for dining, refreshments, a feast, etc.
• The most common way to categorize them is into operating vs. non-operating and fixed vs. variable.
• On a personal level, expense management enables individuals to maintain a healthy financial life.

Or if you’re comfortable with the lesson above, feel free to move along to the next lesson on accounts payable, where we’ll go over expenses that aren’t paid immediately but instead are owing. If you’re a bit uncertain about the accounting equation and how owners equity works, return to our earlier lesson called What is Owners Equity? As usual, we’re going to use our sample business, George’s Catering, to provide an example and see which accounts are affected and what happens to the accounting equation when we have a cash expense. Repairs and maintenance expenses would apply if your business has office equipment like a copying machine or a computer server, or machinery in a manufacturing business that needs to be serviced or repaired. These are monthly or weekly payments to employees for work done for the business. Salaries are paid once a month at the end of the month, while wages are often paid to manual labor or casual workers on a more regular basis, such as once a week.

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A provision for doubtful debts is necessary to account for any non-payments that are not yet obvious but can be reasonably expected. A bad debt expense is recorded for any specific receivables that are unlikely to pay back (e.g., any customers who have filed for bankruptcy). When a business makes a sale on credit, there is a risk that the customer will never return the amount owed to the business. The same is true, of course, for companies that lend money to others for profit, such as banks.

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What is the approximate value of your cash savings and other investments?

This is the default category for any expenses that cannot be directly identified with the cost of sales, selling expenses, finance cost, or taxation. The line between expenses and expenditures is subtle but important. Generally speaking, an definition of expenses expenditure is the total cost of a transaction, while an expense is that transaction’s offset to a company’s revenue. Accrued expenses are transactions a company needs to pay, such as rent or mortgages, but has not yet paid. For example, if a company receives a shipment of raw materials used for production, but the supplier hasn’t yet sent an invoice for the transaction, the amount owed is an accrued expense. The statement of cash flows is where the actual timing of cash payments for all expenditures will be reflected.

Operating expenses consist of the cost of sales, fulfillment, marketing, technology and content, general and administrative, and others. B) Keep track of how much money is spent on supplies, as this will help you determine when it’s time to purchase more. For example, keeping track of how much money is being spent on supplies means that you won’t run out of certain items and disrupt the workflow or productivity of your employees.

Income, on the other hand, is money that is received by a company as a result of its operations. Variable expenses are important for businesses to track because they can have a major impact on profits. Meaning businesses can become significantly more or less profitable with minor adjustments. Fixed expenses are important for businesses to track because they are a major component of total costs. It is important to make sure that these expenses remain in check, so the business can stay profitable.

• The expense accounts listed above are usually sufficient to cater for all types of business expenditures.
• Below is a break down of subject weightings in the FMVA® financial analyst program.
• It’s key that you keep track of your outgoing expenses to not overspend and put the financial health of your company at risk.
• If you’re a bit uncertain about the accounting equation and how owners equity works, return to our earlier lesson called What is Owners Equity?
• But if like many businesses, we don’t pay our expenses the same day they occur, there will be a liability (debt), which we will pay later.
• It allows for strategic decision-making, such as resource allocation, investment planning, and pricing strategies.
• Or if you’re comfortable with the lesson above, feel free to move along to the next lesson on accounts payable, where we’ll go over expenses that aren’t paid immediately but instead are owing.

Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields. One way to think about it is that expenses are negative income and positive income. Conversely, when income exceeds expenses, the company experiences a profit.