What is classified as an expense in accounting?

In accounting, an expense is classified as a cost incurred to generate revenue. This means that any amount spent that contributes to the production of goods or services or the operation of the business ultimately falls under the category of an expense. For example, salaries paid to employees, rent for office space, and utility bills are all expenses because they are necessary expenditures for the business to function and earn income.

Other options refer to different financial classifications. A liability, which involves amounts payable to creditors, does not represent a cost incurred during operations but rather a financial obligation. Similarly, while cash outflows are related to expenses, not all cash outflows can be classified as expenses; some may be investments in assets or repayments of liabilities. Revenue received from sales is income generated by the business and not classified as an expense, as it represents the opposite side of the equation, indicating profit rather than cost.