Expense Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Expense, written in plain English, along with examples of how it is used.

What is Expense?

n. Current cost of operation that is used in business accounting and business taxation. Distinguished from capital expenditures for long-term property and equipment, expenses include rent, utilities and payroll.

History and Meaning of Expense

The term "expense" is commonly used in business accounting and business taxation. An expense is a cost of conducting business operations that is incurred by a company during its normal business activities. Expenses can be classified into two types: capital expenditures and operating expenditures. Capital expenditures refer to the amount of money a company spends on long-term property and equipment, while operating expenditures refer to the costs associated with day-to-day business operations, such as rent, utilities, payroll, and inventory.

Examples of Expense

  1. Rent: A retail store pays rent to lease space in a shopping mall. The rent is an expense that is required to maintain the business operations of the store.

  2. Payroll: A company pays salaries and wages to its employees as an expense to compensate for their work.

  3. Utilities: A manufacturing plant incurs electricity and water bills as expenses for running its operations.

  4. Travel: A company incurs travel expenses when employees travel on behalf of the company, such as airfare, hotel, and meals.

  5. Advertising: A company spends money on advertising to promote its products and services, which is an expense to increase sales.

Legal Terms Similar to Expense

  1. Capital Expenditure: This refers to the amount of money spent on long-term property and equipment that has a useful life of more than one year.

  2. Depreciation: This is the decrease in the value of an asset over time, used as a tax deduction to represent the wear and tear on equipment or other physical assets.

  3. Operating Cost: This refers to the expenses a company incurs to conduct its regular business operations, such as rent, utilities, payroll, and inventory.

  4. Overhead: This is the ongoing administrative expenses incurred by a company that are not directly related to the production of goods or services.

  5. Gross Profit: This is the profit a company makes after deducting the cost of goods sold (COGS) from its revenue, before deducting any expenses.