What is an expense?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
An expense is a cost a business incurs in running its operations and earning its income, such as rent, wages, materials, advertising, insurance or bank fees. Expenses are recorded in expense accounts and shown in the profit and loss statement, where they are taken away from revenue to work out the profit or loss for the period.
Expenses can be grouped by what they relate to. Direct costs can be traced to particular goods or services, such as materials for a job. Overheads support the wider business. Either group can include costs that vary with activity and costs that stay steady over a period.
An expense is used up in running the business, like a month's rent or a tank of fuel. A machine or vehicle that will last for years is usually recorded as an asset instead, and how it is treated in the accounts is a question for your accountant.
In Australia
business.gov.au lists records of all business expenses, including cash purchases, among the records a business needs to keep, along with records of all expenses related to its assets or stock.
The ATO says the records a business must keep include any documents related to its income and expenses. Where an expense covers both business and personal use, it says there should be clear documents showing the business portion.
business.gov.au's glossary lists rent, marketing, utilities and administration as examples of overheads, and describes cost of goods sold as the total direct costs of producing a good or delivering a service.
Worked example
| Expense account | Group | Amount (AUD) |
|---|---|---|
| Materials for jobs | Cost of goods sold | 3,200.00 |
| Rent | Overheads | 1,800.00 |
| Insurance | Overheads | 240.00 |
| Advertising | Overheads | 450.00 |
| Bank fees | Overheads | 35.00 |
| Total expenses | 5,725.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording a cost that is partly personal, such as a phone plan used for work and home, in full as a business expense without working out the business portion.
- Coding the same kind of cost to different accounts from month to month, so one period cannot be compared with another.
- Paying cash for a small purchase and keeping no receipt, so the cost never reaches the books.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Record keeping
business.gov.au, Australian Government. Current at 15 October 2026, released 7 November 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Overview of record-keeping rules for business
Australian Taxation Office. Current at 18 June 2026 (QC60718), released 18 June 2026. Checked 15 October 2026.
© Australian Taxation Office for the Commonwealth of Australia Licence: ATO website copyright notice (copy, adapt and distribute, without implying ATO endorsement).
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.