Lessons · Accounting · recording an expense
Recording an expense
An expense is a cost of running the business this period. It goes up on the debit side, and whatever paid for it, cash or a payable, is credited.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
Rent, wages, fuel, insurance: the owner asks at month-end where the cash went, and the expense accounts are the answer, one line each, in words the owner recognises.
How to think about it
Name the expense precisely, because the name is what the owner will read. Debit it. Credit cash if it was paid, accounts payable if it was not.
Worked example
Dr Rent expense 1,200 / Cr Cash 1,200Paid.
Dr Wages expense 3,400 / Cr Cash 3,400Paid.
Dr Insurance expense 180 / Cr Accounts payable 180Invoiced, not yet paid. Still this month's expense.
Expenses this month = 1,200 + 3,400 + 180 = 4,780What it cost to run the business, whether or not every bill has been paid.
Your turn
Paid 260 cash for fuel. Write the debit line.
Dr 260 / Cr Cash 260
Solve one, graded on the server
The trap
Calling every cash payment an expense. A van bought for cash is an asset; a loan repaid is a liability going down. Neither makes the month's profit smaller.