Expenses in finance can be categorized as: purchased materials; purchased fuel and power; salaries and employee benefits; depreciation; interest expense; taxes; and other expenses.
Expenses are the total outflow of economic benefits incurred by a business in its day-to-day activities that would result in a decrease in owners' equity and are not related to the distribution of profits to owners. Expenses are incurred by a business in the form of a decrease in owners' equity due to an outflow of assets from the business, a depletion of assets or an increase in liabilities. However, there are exceptions, such as the owners of the enterprise to withdraw their investment or the enterprise to distribute profits to the owners, although it will cause a decrease in assets or increase in liabilities, and make the owner's equity decrease, but is not the economic operations of the enterprise to incur expenses.
When recognizing expenses, the first step should be to draw a line between production and non-production expenses. Production costs refers to the costs related to the daily production and operation activities of the enterprise, such as raw material costs incurred in the production of products, labor costs, etc.; non-production costs refers to the costs that do not belong to the production costs, such as the costs incurred for the purchase and construction of fixed assets, which do not belong to the production costs.
Secondly, the production costs and product costs should be clear boundaries. Production costs are associated with a certain period of time, not related to the production of products; product costs are associated with a certain variety and quantity of products, and regardless of the period in which they are incurred.
Finally, there should be a distinction between production costs and period costs. Production costs should be charged to the cost of the product, while period expenses are charged directly to current profit and loss.
Expense recognition, in addition to meeting the definition, should also meet the strict conditions, that is, expenses can only be recognized when it is probable that an outflow of economic benefits will result in a decrease in the assets or an increase in the liabilities of the enterprise, and the amount of the outflow can be measured reliably. Therefore, expenses should be recognized at least under the following conditions:
First, it should be probable that the economic benefits associated with the expense will flow out of the enterprise; second, the outflow of economic benefits will result in a decrease in assets or an increase in liabilities; and third, the outflow of economic benefits can be measured reliably.
Reference? Baidu Encyclopedia? Expense