An expense in accounting is the money spent, or costs incurred, by a business in their effort to generate revenues. Essentially, account expenses represent the cost of doing business; they are the sum of all the activities that result in a profit.
It is important to understand the difference between “cost” and “expense” since they each have a distinct meaning in accounting. Cost is the monetary measure (cash) that has been given up to buy an asset. An expense is a cost that has expired or been taken up by activities that help generate revenue. Therefore, all expenses are costs, but not all costs are expenses.
Create Expenses in Splendid Accounts
- Pay From: Select the account type from the dropdown where you want to pay for the Expenses
- Numbers: The number will automatically be generated
- Date: This will default to today’s date. You can change this also.
Expenses affect all financial accounting statements but exert the most impact on the income statement. They appear on the income statement under five major headings, as listed below:
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is the cost of acquiring raw materials and turning them into finished products. It does not include selling and administrative costs incurred by the whole company, nor interest expense or losses on extraordinary items.
For manufacturing firms, COGS include direct labor, direct materials, and manufacturing overhead.
For a service company, it is called a cost of services rather than COGS.
For a company that sells both goods and services, it is called the cost of sales.
Examples of COGS include direct material, direct costs, depreciation expense, and production overhead.