--- title: "What Is an Expense? Definition & Example | MCC Solutions" description: "A cost of running the business, subtracted from revenue to find profit. A worked example, how it differs from an asset and common mistakes." url: "https://mcc-solutionsnj.com/bookkeeping/glossary/expense" --- Bookkeeping glossary # What is an expense? A cost of running the business, subtracted from revenue to find profit. By [Matthew Coleman](/about), MCC Solutions [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## In plain English Expenses are recorded in the period they are incurred. Owner draws and loan principal are not expenses. Want a second pair of eyes on your books? [A free bookkeeping health check](/bookkeeping/health-check). Good categories make the profit and loss meaningful. ## Why it matters Expenses decide your profit, and profit drives decisions about pricing, hiring and taxes. If expenses are miscategorized, you might cut marketing that is working or miss that software subscriptions have crept up. Clear categories make the profit and loss useful rather than just a number. Expense records also support your tax return. Each expense should have a receipt or bill and a clear business purpose. If something is ever questioned, organized records are much easier to defend than bank statements alone. ## Worked example Rent $2,000, software $350 and insurance $400 are three monthly expenses. ## How to handle it - Categorize each expense to the account that fits it, using the same account each time for similar costs. - Attach a receipt or invoice to each transaction, especially larger ones. - Note the business purpose for meals, travel and other items where the reason is not obvious. - Separate personal charges paid with business funds and record them as owner draws. - Compare monthly expense totals to the prior month and look into big changes. ## Common mistakes - Recording loan principal payments as an expense, which understates profit and leaves the loan balance too high. - Expensing an equipment purchase that should be recorded as an asset, which can distort profit and affect taxes. - Putting personal purchases in business expense accounts, which can lead to incorrect deductions. - Using different accounts for the same cost from month to month, which makes trends impossible to read. ## Not the same as: Asset An expense is used up in the current period, like rent or utilities. An asset keeps value into future periods, like equipment or a prepaid annual policy. [See Asset](/bookkeeping/glossary/asset). ## Go deeper - [Expense Categorization Rules of Thumb](/bookkeeping/guides/expense-categorization-rules-of-thumb): Practical rules for categorizing business expenses consistently: how to choose categories, handle gray areas and keep tax time simple. ## Related terms - [Fixed asset](/bookkeeping/glossary/fixed-asset): A long-lived item the business uses, such as equipment, vehicles or buildings. - [Form 1099-NEC](/bookkeeping/glossary/form-1099-nec): An IRS information return reporting payments to non-employee contractors above a threshold. - [Equity](/bookkeeping/glossary/equity): The owner's stake in the business: what is left after liabilities are subtracted from assets. ## Common questions **What is an expense?** A cost of running the business, subtracted from revenue to find profit. **Can you give an example of expense?** Rent $2,000, software $350 and insurance $400 are three monthly expenses. **Is every business expense deductible?** Not always. Some costs are limited or not deductible at all, and rules change. Check with your accountant or the IRS for your situation. **How long should I keep expense receipts?** Keep them at least as long as your tax records might be reviewed, and longer for items like equipment. Ask your accountant for the period that applies to you. General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional. Need help? [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [Full glossary](/bookkeeping/glossary) Do it yourself ### Solopreneur Money Toolkit Estimate the tax, compare the offer, keep the calendar and run the business from one organized set of files. [See what's inside ($99)](/toolkits/solopreneur-money-toolkit)14-day full refund [![Cover of Bookkeeping Fundamentals (ebook) by Matthew Colt](/img/toolkits/bookkeeping-fundamentals-ebook/cover.webp)](/toolkits/bookkeeping-fundamentals-ebook) From the bookshelf ### Bookkeeping Fundamentals A college-level bookkeeping course, without the tuition. By Matthew Colt, $9.99 as an ebook (EPUB and PDF). [See the book](/toolkits/bookkeeping-fundamentals-ebook) [Read the first pages free](/toolkits/bookkeeping-fundamentals-ebook#free-starter) Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)