What is expenses?

• Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
• Qualification: Distribution to owners is NOT an expense despite it resulting in a decrease in equity

• Cost of sales expense is the main expense incurred by an entity – in order to sell goods and generate income, the entity must purchase goods for resale 
• Other expenses include wages and salaries, depreciation, selling administrative and borrowing expenses
• The acquisition of certain assets (such as property, plant and equipment) is not an expense of the period because there is no reduction in equity associated with the transaction
• However there may be related depreciation and/or impairment expenses

• Recognition
• Recognising an expense involves determining 
• if a decrease in economic benefits has arisen and 
• if the decrease in economic benefits is capable of reliable measurement
• Classification
• There is some choice as to how to display and classify expenses in the income statement
• Smaller entities: often list all their expenses in the income statement
• Larger entities: aggregate their expenses into certain classes for reporting purposes 
• Reporting entities: required to classify their expenses by nature or function

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