What is an expense? Meaning, type and examples

Expenses are the costs a business has to pay for to operate and make money. Every business has expenses, and in some cases, these costs can be deducted from your taxable income to reduce the amount of tax you need to pay. 

Tracking your expenses is essential to staying on top of your business finances and your profitability.

This guide covers the ins and outs of business expenses, including common types of expenses, what you might be able to deduct on tax, and why expense management is so important.

Business expenses definition

Simply put, expenses are the cost of doing business. Anything you spend money on to operate your business and generate revenue counts as a business expense. Common business expenses include rent, staff wages, equipment, vehicles, payments to suppliers, and insurance. 

The type of business you run impacts the type of expenses you’ll incur. For example, an electrician might have to factor in costs such as tools and vehicles, whereas an accountant might need to pay for computer equipment and office rent. Both businesses could also share common expenses such as insurance, staff wages, and marketing and advertising costs.

Types of business expenses

There are two main categories of business expenses:

• Operating expenses: These are any expenses related to your business’ main activities, such as the cost of goods sold (COGS), staff wages, and rent.
• Non-operating expenses: This refers to any expenses that aren’t directly related to your business' main operations. 

Examples of operating expenses

Some common examples of operating expenses include:

• Staff wages
• Rent or mortgage
• Utilities
• Insurance
• Business vehicles
• Equipment or equipment rentals
• Software
• Furniture
• Supplies
• Membership fees
• Business travel costs
• Staff training and development
• Staff benefits
• Subscriptions
• Marketing and advertising
• Maintenance and repair

Examples of non-operating expenses

Non-operating expenses include indirect business costs such as:

• Interest payments
• Losses from investments
• Lawsuit settlement costs
• Restructuring or relocation costs
• Currency fluctuations
• Natural disasters

Tax-deductible business expenses

Most expenses related to running your business can be offset to reduce your taxable income, and potentially minimise your tax bill. 

Some of the most common tax-deductible business expenses include:

• Staff wages and benefits
• Rent or mortgage
• Utilities
• Maintenance and repairs
• Business vehicles and related costs such as gas
• Cost of Goods Sold (COGS)
• Insurance
• Licenses and permits
• Legal, accounting and other professional service fees
• Office furniture, equipment and supplies
• Marketing, advertising and PR costs
• Software and subscription fees
• Business travel and accommodation
• Depreciation of assets

If an expense is for both business and personal use, you can only deduct the portion of the expense that applies to your business. For example, if you drive a vehicle for business and personal use, you can only deduct the percentage of vehicle-related costs that apply to business use.

Keep in mind that the rules differ depending on the country in which you operate, so it’s a good idea to check with an accountant or tax advisor to find out which tax-deductible expenses apply to your business.

Why is expense management important?

No matter what type of business you run, tracking and managing your expenses is essential. Not only does good expense management help you keep more of what you earn at tax time, but it also ensures your books are accurate and your cash flow is healthy. 

On top of that, tracking expenses helps you stick to a budget, which is crucial for any small business owner. By setting a budget for specific periods or projects, you can make sure you’re allocating your resources where your business needs them. 

Staying on top of your expenses and business budget also helps you identify problems like overspending and cash flow issues early on – so you can nip them in the bud before they become bigger concerns.

How to track your business expenses

Tracking your expenses manually can be a headache. Fortunately, mobile expense tracking apps like QuickBooks Online make managing expenses easy – even while you’re on the go. 

With QuickBooks, you can sync your business credit cards and debit cards to the app, so all your relevant transactions are automatically imported and categorised. You can also take a photo of your expense receipts and upload them to the app, meaning no more messy paperwork. Receipts can be saved and attached to bank transactions, making tax time a breeze.

Take control of your business expenses the easy way – all in one place, from any device – with QuickBooks’ expense tracker.