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An expense is caused by a transaction or event arising during the ordinary activities of the business which causes a decrease in the ownership interest. Expenses are the cost of assets consumed or services used in the process of earning revenue. They are decreases in owner’s equity that result from operating the business. For example, in Pizza business recognizes the following expenses:

  • Cost of ingredients (meat, flour, cheese, tomato paste, mushrooms, etc.); cost of beverages;
  • Salaries and wages expense; utilities expense (electric, gas, and water expense);
  • Delivery expense (gasoline, repairs, licenses, etc.); supplies expense (napkins, detergents, aprons, etc.);
  • Rent expense; interest expense; and property tax expense.

According to SFAC 6 as outflows from delivering or producing goods, rendering services or carrying out other activities that constitute the entity’s ongoing major or central operations (Para. 80).

Following are some examples of expenses:

expenses>> Read Golden Rules of Accounting.

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Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.

Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.

Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.


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