Expense
What is an expense?
An expense is a cost of running the business in the period, such as rent, wages or electricity.
In the books an expense account goes up on the debit side.
Drawings are not an expense. Nor is the cost of an asset that lasts for years.
Example
A bakery pays £300.00 rent from the bank. Rent is debited with £300.00 and Bank is credited with £300.00.
Why it matters
Expenses are set against income to find the profit. Costs that are too high make profit too low, and costs that are too low make profit too high.
Practise it
Practise it nowDebit and credit
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].