Expenses are defined as which of the following?

• A. Costs incurred by the business. Eg: purchase of goods, rent, salaries
• B. Money received from sales
• C. Assets purchased for resale
• D. Liabilities owed

Answer: (A)

Costs the business incurs in its day-to-day operations to earn revenue are expenses. These are the ongoing outflows that happen in keeping the business running, such as paying rent, salaries, or buying goods for use in the business. They appear on the income statement and reduce profit because they represent resources used up in the period.

Money received from sales is revenue, which increases income, not expense. Assets purchased for resale are inventory or other assets, not expenses until they’re consumed or sold. Liabilities owed are obligations the business must pay in the future, which are liabilities, not expenses.