Introducing: Expense
May 25th, 2009
The outgoing part of the Profitability equation.
Generically, “expense” may be defined as anything of value given up in order to obtain resources, services or labor. Almost always, expense precedes revenue.
In the simplest terms, expense is cash given in payment for materials or services. There is a continuum of paying for expenses, ranging from “Cash-Near Cash through to Barter of Products or Services.”
How one pays for an expense shouldn’t be an issue. Whatever you receive in return for the payment is an expense to your business, whether you pay cash, use a credit card, exchange an asset or provide a service as payment.
Accounting for expenses, and when to book them, is relatively straightforward although some knowledge of basic accounting principles is helpful. If an expense is not paid in cash, then it is important to track when whatever was given (e.g., an I.O.U.) converts to cash (usually the “Near Cash” items, not the bartered products and services).
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