Question

What is meant by Expenses?

Answer 1

Expenses refer to the costs incurred by a business enterprise in the process of earning revenue. They represent the monetary value of resources consumed, services used, or assets used up to support the enterprise’s daily operations during an accounting period. In financial accounting, expenses are recorded on the debit side of the Statement of Profit and Loss and include direct operating costs like wages, carriage inward, and purchases, as well as indirect operating costs such as rent, salaries, insurance, depreciation on fixed assets, and interest paid on borrowings. According to the matching principle of accounting, these costs must be strictly recognised and matched against the specific revenue generated in the same financial year to determine the true and fair net profit or loss of the business, ultimately resulting in a reduction of the owner’s capital.