What are expenses?

A penny saved…

Expenses are the cost of producing revenues.

The largest expense for most companies is something called cost of goods sold.  This is the cost of buying or making the products that you sell.  For example, if you buy vitamins for $10/bottle and sell them for $30/bottle, then your cost of goods sold for each bottle would be $10.

Cost of goods sold is subtracted as an expense when you actually sell the item of merchandise, not when you purchase the item of merchandise, and not when you pay for the item of merchandise.  Similarly, on your tax return, you usually can’t deduct an item’s cost of goods sold item until you actually sell it.

Other expenses include selling expense, such as advertising and sales commissions, administrative expense, and income tax expense.

Notice that expenses are supposed to produce revenues.  Therefore, when deciding whether or not to incur an expense, ask yourself a simple question: Will this expense increase my revenues?  Will it pay for itself?  If the answer is no, then save your money.

What expenses are deductible?

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.


  1. Accrual accounting explained « Accountinator - February 1, 2012

    […] Expenses are recorded when incurred.  As I’ve written before, expenses provide some benefit to the company – otherwise the company would not bother to have any expenses.  Usually expenses will cause something to happen that will increase revenues or profits.  Most expenses, therefore, are recorded when the company actually gets the benefit from them.  For example, your utility bill expense is recorded when you use the heat and lights, and not necessarily when you actually pay for the expense. […]

  2. Accrued expenses explained « Accountinator - February 2, 2012

    […] expenses are expenses which you have incurred, or used, but have not yet paid for.  They are a liability on your balance […]

  3. Assets vs. Expenses « Accountinator - May 4, 2012

    […] Expenses are the cost of bringing in revenues.  They were needed to bring in the revenues and profits that you reported this year.  Expenses appear on the income statement. […]

  4. The income statement explained « Accountinator - May 7, 2012

    […] – expenses = net […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: