Expense

Expenses are one of the drivers of cash flow. Wikipedia, the free, on-line encyclopedia, gives us this description of an expense:

In common usage, an expense or 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".

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.

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The entrepreneur must watch expenses carefully, keeping them to a minimum and to ensure that every expense is justified and has a reasonable chance of returning value or revenue at or above some predetermined benchmark in a specified length of time.

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