Expense
In
accounting, an expense represents 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 official definition of
expense used by
International Accounting Standards Board is (quotation from IFRS Framework):
Expenses are 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. [F.70]One specific use of the term in
accounting is whether a particular expenditure is classified as an
expense, which is reported immediately to the investing
public in the business's
income statement; or whether it is classified as a
capital expenditure or an expenditure subject to
depreciation, which is not. These latter types of expenditures are reported as expenses eventually, but not immediately, by businesses that use
accrual-basis accounting, meaning all large businesses.
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.
