How is an expense defined in accounting?

How is an expense defined in accounting?

• A. The income generated from sales
• B. The net profit before taxes
• C. The costs incurred in the process of earning revenue
• D. The cash retained in the business

Answer: (C)

An expense in accounting is defined as the costs incurred in the process of earning revenue. This definition highlights the relationship between expenses and revenue generation; expenses are necessary expenditures that contribute to business operations and ultimately help produce income. For a business, recognizing and tracking expenses is crucial, as they are subtracted from revenue to determine net profit. By defining expenses this way, it underscores their role in the accounting cycle and financial reporting, where expenses are recorded during the period they are incurred, matching them against the revenue generated in that same period. This adherence to the matching principle is fundamental for accurate financial reporting and provides insights into the overall financial health of the business.

An expense in accounting is defined as the costs incurred in the process of earning revenue. This definition highlights the relationship between expenses and revenue generation; expenses are necessary expenditures that contribute to business operations and ultimately help produce income. For a business, recognizing and tracking expenses is crucial, as they are subtracted from revenue to determine net profit.

By defining expenses this way, it underscores their role in the accounting cycle and financial reporting, where expenses are recorded during the period they are incurred, matching them against the revenue generated in that same period. This adherence to the matching principle is fundamental for accurate financial reporting and provides insights into the overall financial health of the business.