---
title: "Expenses"
description: "What expenses are in accounting, how they differ from costs, assets and cash payments, the main types on an income statement and how an expense is recorded."
canonical: https://ledgeriano.com/glossary/expenses
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Expenses

> What expenses are in accounting, how they differ from costs, assets and cash payments, the main types on an income statement and how an expense is recorded.

Expenses are decreases in economic benefits during a period, through cash outflows or assets used up, that reduce equity other than through distributions to owners. Salaries, rent, utilities, depreciation, interest and the cost of goods sold are typical expenses. They have a debit normal balance and are matched to the period they relate to.

On an income statement by function, expenses are grouped as **cost of sales**, **selling and distribution**, **administrative**, **finance costs** and **income tax**. Grouping matters because [gross profit](https://ledgeriano.com/glossary/gross-profit) and operating profit are computed between these lines.

An expense is not the same as a payment. Paying a year of insurance up front creates a [prepaid expense](https://ledgeriano.com/glossary/prepaid-expense) that becomes an expense month by month, while wages earned but unpaid at month end are an [accrued expense](https://ledgeriano.com/glossary/accrued-expense). Buying a machine is not an expense at all: it is an asset that is expensed gradually through [depreciation](https://ledgeriano.com/glossary/depreciation).

## Example: recording a monthly rent expense

A shop pays rent of 2,500 for March on 1 March. It debits rent expense 2,500 and credits bank 2,500. If it had paid three months in advance, it would debit prepaid rent 7,500 and transfer 2,500 to rent expense at the end of each month.

| Account | Debit | Credit |
| --- | --- | --- |
| Rent expense | 2,500 |  |
| Bank |  | 2,500 |

### What is the difference between a cost and an expense?

A cost is the amount spent to acquire something. It becomes an expense when the benefit is used up in a period; inventory bought is a cost held as an asset until it is sold and becomes cost of goods sold.

### Is depreciation an expense?

Yes. Depreciation is a non-cash expense that spreads the cost of a fixed asset over the years it is used.

Guide: https://ledgeriano.com/guides/financial-statements