Expenses are the costs a business incurs in its day-to-day operations to generate revenue. They represent the outflow of money or the use of assets to run a company and are recorded on the income statement, directly affecting the net income or profit of the business.

There are several types of expenses, including:

• Operating expenses: These include rent, utilities, wages, office supplies, and insurance—costs needed to keep the business running.

• Cost of Goods Sold (COGS): Direct costs related to producing goods or services sold.

• Administrative expenses: Overhead costs not directly tied to production, like salaries of executive staff or accounting fees.

• Depreciation and amortization: Non-cash expenses reflecting the reduction in value of assets over time.

Expenses are different from capital expenditures, which are investments in long-term assets and appear on the balance sheet. While capital expenditures are depreciated over time, regular expenses are recorded in the period they occur.

Properly tracking and categorizing expenses helps businesses manage cash flow, set budgets, and assess profitability. It also ensures compliance with tax laws, as many business expenses are deductible. In summary, managing expenses effectively is essential for financial health and operational success.