What are expenses?

A penny saved…

Expenses are the cost of producing revenues.

The largest expense for most companies is something called cost of goods sold.  This is the cost of buying or making the products that you sell.  For example, if you buy vitamins for $10/bottle and sell them for $30/bottle, then your cost of goods sold for each bottle would be $10.

Cost of goods sold is subtracted as an expense when you actually sell the item of merchandise, not when you purchase the item of merchandise, and not when you pay for the item of merchandise.  Similarly, on your tax return, you usually can’t deduct an item’s cost of goods sold item until you actually sell it.

Other expenses include selling expense, such as advertising and sales commissions, administrative expense, and income tax expense.

Notice that expenses are supposed to produce revenues.  Therefore, when deciding whether or not to incur an expense, ask yourself a simple question: Will this expense increase my revenues?  Will it pay for itself?  If the answer is no, then save your money.

What expenses are deductible?

6 thoughts on “What are expenses?

  1. I am having trouble understanding how to list my supply expenses that I have upfront to make my product (I assume they should be listed as a Supply first) then move that expense from Supplies to COGS as items sell. I make an item with many parts I buy in bulk, I can’t understand how I would be able to accurately track those numbers to move from a Supply cost to a COGS. Any clarifying tips on this? TIA!

    • Christy, you probably need a more sophisticated accounting program than this spreadsheet. Look for a software package that can handle inventory.

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