expense
/ ek-SPENS /
Running any business uses things up. The bakery burns through flour, electricity, and the hours of its staff; a software firm uses up salaries, server time, and office rent. Each of those is a sacrifice the business makes in order to earn its revenue. An expense is the accounting name for one of those used-up resources — the cost of the things consumed to keep the business running and to generate sales.
Precisely, an expense is a decrease in a company's resources (or an obligation it takes on) that arises from its ordinary activities of earning revenue, recorded in the period in which it helps produce that revenue. Like revenue, expenses follow the accrual idea: a December electricity bill paid in January is still a December expense, because that is when the electricity was used. So if a shop pays 3,000 of rent and 7,000 of wages and uses 5,000 of supplies in a month, it has 15,000 of expenses for that month, regardless of exactly when each invoice clears the bank.
Expenses matter because they are the entire reason revenue does not simply equal profit — profit is what survives after every expense is taken out. Note that not every payment is an expense: buying a delivery truck is purchasing an asset, and only the slice of its value used up each year (depreciation) becomes an expense. Confusing 'money going out' with 'an expense' is one of the most common errors for beginners, and it is exactly why the matching principle exists to decide which costs hit the income statement and when.
A gym pays 12,000 cash for a year of insurance in January; it does not record a 12,000 expense at once but instead records 1,000 of insurance expense each month as the coverage is used up.
An expense lands in the period the resource is consumed, not necessarily when cash leaves.
Not every cash payment is an expense: buying a long-lived asset is not expensed immediately — only the portion consumed each period (such as depreciation) becomes an expense.