Expenditure is an outflow of money to another person or group to pay for an

item or service, or for a category of costs. For a tenant, rent is an expense. For

students or parents, tuition is an expense. Buying food, clothing, furniture or an
automobile is often referred to as an expense. An expense is a cost that is "paid"
or "remitted", usually in exchange for something of value. Something that seems
to cost a great deal is "expensive". Something that seems to cost little is
"inexpensive". "Expenses of the table" are expenses of dining, refreshments,
a feast, etc.
In accounting, expense has a very specific meaning. It is an outflow of cash or
other valuable assets from a person or company to another person or company.
This outflow of cash is generally one side of a trade for products or services that
have equal or better current or future value to the buyer than to the seller.
Technically, an expense is an event in which an asset is used up or a liability is
incurred. In terms of the accounting equation, expenses reduce owners' equity.
The International Accounting Standards Board defines expenses as:
...decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in
decreases in equity, other than those relating to distributions to equity
participants
Expenditure is the amount of resource consumed.Usually it is of long term in
nature.Therefore its benefits is derived over a period ehich extended beyond the
accounting year.Expenditure is classfied into capital expenditure and revenue
expenditure .[1]

Contents

 1Bookkeeping for expenses

 2Cash flow
 3Deduction of business expenses under the United States tax code
 4Expense report
 5See also
 6References
 7External links

Bookkeeping for expenses[edit]

In double-entry bookkeeping, expenses are recorded as a debit to an expense
account (an income statement account) and a credit to either an asset account or
a liability account, which are balance sheet accounts. An expense decreases
assets or increases liabilities. Typical business expenses include salaries,
utilities, depreciation of capital assets, and interest expense for loans. The
purchase of a capital asset such as a building or equipment is not an expense.

Cash flow[edit]
In a cash flow statement (flow of funds statement), expenditures are divided into
three categories:

 Operating: Operational expense – salary for employees

 Investing: Capital expenditure – buying equipment
 Expenditures (financial) Financing expense – interest
expense for loans and bonds
Whether a particular expenditure is classified as an expense, which is reported
immediately on the business's income statement or whether it is classified as
a capital expenditure (or an expenditure subject to depreciation) which is not an
expense flow of funds statement. Though, these latter types of expenditures are
reported as expenses when they are depreciated by businesses that use accrual-
basis accounting- as most large businesses and all C corporations do.
Defining an expense as capital or income using the most common interpretation
depends upon its term.
When an expense is seen as a purchase it alleviates this distinction. Soon after
the purchase, (that which was expenses holds no value), then it is usually
identified as an expense. It will be viewed as capital with life that should
be amortized/depreciated and retained on the balance sheet if it retains value
soon and long after the purchase.

Deduction of business expenses under the United States

tax code[edit]
For tax purposes, the Internal Revenue Code permits the deduction of business
expenses in the tax payable year in which those expenses are paid or incurred.
This is in contrast to capital expenditures[2] that are paid or incurred to acquire an
asset. Expenses are costs that do not acquire, improve, or prolong the life of an
asset. For example, a person who buys a new truck for a business would be
making a capital expenditure because they have acquired a new business-
related asset. This cost could not be deducted in the current taxable year.
However, the gas the person buys during that year to fuel that truck would be
considered a deductible expense. The cost of purchasing gas does not improve
or prolong the life of the truck but simply allows the truck to run.[3]
Even if something qualifies as an expense, it is not necessarily deductible. As a
general rule, expenses are deductible if they relate to a taxpayer’s trade or
business activity or if the expense is paid or incurred in the production or
collection of income from an activity that does not rise to the level of a trade or
business (investment activity).
Section 162(a) of the Internal Revenue Code is the deduction provision for
business or trade expenses.[4] In order to be a trade or business expense and
qualify for a deduction, it must satisfy 5 elements in addition to qualifying as an
expense. It must be (1) ordinary and (2) necessary (Welch v. Helvering defines
this as necessary for the development of the business at least in that they were
appropriate and helpful). Expenses paid to preserve one’s reputation do not
appear to qualify)[5]. In addition, it must be (3) paid or incurred during the taxable
year. It must be paid (4) in carrying on (meaning not prior to the start of a
business or in creating it) (5) a trade or business activity. To qualify as a trade or
business activity, it must be continuous and regular, and profit must be the
primary motive. An expense can be a loss or profit. But loss or profit need not
really be an expense.
Section 212 of the Internal Revenue Code is the deduction provision for
investment expenses.[6] In addition to being an expense and satisfying elements
1-4 above, expenses are deductible as an investment activity under Section 212
of the Internal Revenue Code if they are (1) for the production or collection of
income, (2) for the management, conservation, or maintenance of property held
for the production of income, or (3) in connection with the determination,
collection, or refund of any tax.
In investing, one controversy that mounted throughout 2002 and 2003 was
whether companies should report the granting of stock options to employees as
an expense on the income statement, or should not report this at all in the
income statement, which is what had previously been the norm.

Expense report[edit]
An expense report is a form of document that contains all the expenses that an
individual has incurred as a result of the business operation. For example, if the
owner of a business travels to another location for a meeting, the cost of travel,
the meals, and all other expenses that he/she has incurred may be added to the
expense report. Consequently, these expenses will be considered business
expenses and are tax deductible.
Many businesses benefit from automated expense reports systems for expense
management. Depending on the system chosen, these software solutions can
reduce time costs, errors, and fraud.
https://en.wikipedia.org/wiki/Expense