Expense
Expense is the cost of resources consumed in earning revenue during a period, recognised on the income statement as a reduction of profit. An expense is recorded when the resource is consumed, not when cash is paid.
Also known ascost incurred
See it move
The split-bar chart shows total expenses of €7,300 for Nordas SA in April, divided into three segments: materials €4,500, wages €2,000, and rent €800. Each segment represents a resource consumed during the period, and the note states that each slice is matched to the revenue it helped earn — the application of the matching principle — rather than being recognised when cash changes hands.
Check yourself
On 1 October, Nordas SA pays €12,000 cash for a 12-month insurance policy covering 1 October to 30 September of the following year. The company prepares quarterly financial statements. How much insurance expense should appear in the income statement for the quarter ended 31 December?