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In accounting, an expense represents an event in which an asset is used up or a liability is incurred. In terms of the accounting equation, expenses reduce owners' equity.
The official definition of ''expense'' used by International Accounting Standards Board is (quotation from IFRS Framework):
:''Expenses are 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. [F.70]''
All expenses are divided into operational, capital, and financial ones.

Examples:

★ Operational expense (OPEX)—salary for employees

★ Capital expenditure (CAPEX)—buying equipment

★ Financial expense—interest expense for loans and bonds
An important issue in accounting is whether a particular expenditure is classified as an 'opex', which is reported immediately to the investing public in the business's income statement; or whether it is classified as a capital expenditure or an expenditure subject to depreciation, which is not. These latter types of expenditures are reported as expenses eventually, but not immediately, by businesses that use accrual-basis accounting, which is most large businesses and all 'C' corporations.
The most common interpretation of whether an expense is of capital or income variety depends upon its term. Viewing an expense as a purchase helps alleviate this distinction. If, soon after the "purchase", that which was expensed holds no value then it is usually identified as an income expense. If it retains value soon and long after the purchase, it will be viewed as capital with life that should be amortized/depreciated and retained on the Balance Sheet.
In investing, one controversy that mounted throughout 2002 and 2003 was whether companies should report the granting of stock options to employees as an expense on the income statement, or should not report this at all in the income statement, which is what had previously been the norm.

Contents

See also

External links

See also

★ Cash flow statement

★ Income statement

★ Balance Sheet

★ Capital Expenditures

★ Amortization/Depreciation

★ Stock Option Expensing

★ Operational Expenditure

★ Non-Cash Expense

External links

★ Light Reading—Capex vs Opex—Telecom

★ Expenditure Forecast.pdf Transco Capex/Opex Review

★ Telecom carrier capex increasing worldwide; US telco consolidation hinders opex