Why the items a company buys are called expenses and how they impact profits for Pima JTED students.

What do we call the things a company buys to run its business? The quick answer is expenses. But there’s a bit more to it than a single label. Let me explain how this idea fits into the big picture of business numbers, and why it matters when you’re trying to see how well a company is really doing.

Getting to the heart of expenses

Here’s the thing: expenses are the costs a business incurs to earn revenue. When a company buys goods or services needed to operate, those purchases are recorded as expenses for the period in which they occur. Think of rent for the office, electricity to keep the lights on, salaries to pay the team, or the paper and pens the staff use every day. All of these are expenses because they represent resources that have already flowed out of the business to support operations.

This isn’t about judging a purchase as good or bad. It’s about where the cost lands in the financial records. Expenses sit on the income statement, which is a snapshot of how much money came in and how much money went out during a set period. When you scan that page, expenses tell you what it cost to generate the revenue you see above it.

A simple way to remember it: expenses are what you spend to keep the lights on and the wheels turning.

Assets, liabilities, and that tricky middle ground

Now, a quick aside that helps keep the picture clear. Not every purchase is an expense right away. Some purchases are assets. An asset is something a company owns that has value in the future. A company buys a machine, a building, or even software that will help generate value for years. Those kinds of purchases don’t hit the income statement as a whole in the moment; instead, their cost is spread out over time through a process called depreciation or amortization.

On the flip side, liabilities are obligations the company owes to others—like a loan or money owed to suppliers. Liabilities show up on the balance sheet, a different financial snapshot that shows what the company owns versus what it owes at a point in time.

So where do expenses fit in? They’re the cost of doing business that has already been used up in the period. If you bought something you can use up in a few months, it’s often an expense. If you buy something that will help you for years, that purchase tends to become an asset and gets expensed gradually over time.

Why this distinction matters for profitability

Here’s where the real value comes in. For a business, profitability is all about how much revenue is left after all the costs of doing business are accounted for. In simple terms:

Revenue minus expenses equals net income (or profit).

If a company sells widgets for $100,000 over a month and spends $70,000 on rent, salaries, supplies, and other costs, its net income for that period is $30,000. Those numbers aren’t just账 symbols; they tell a real story about whether the business is earning enough to grow, pay back debt, or reward owners.

That’s why understanding expenses isn’t just about “finding” numbers. It’s about understanding how daily choices—like how much to spend on advertising, whether to hire more staff, or how much to pay for utilities—shape the bottom line.

Common sense examples to anchor the idea

Let’s walk through a few everyday scenarios.

• Rent and utilities: If your office space costs $2,000 a month in rent and $500 in utilities, those amounts show up as expenses for that month. They’re costs tied to keeping the workplace open and functional.

• Salaries: The people who work there aren’t just “workers.” Their salaries are expenses because they represent the cost of labor used to generate products or services.

• Supplies: Pens, paper, staples, and basic office supplies—these are small, routine purchases that add up. They’re expenses because they’re consumed in the normal course of doing business.

• Depreciation: Suppose you buy a delivery van for $25,000. The van will serve the company for several years. Rather than recording the entire $25,000 as an expense in the month you buy it, you allocate a portion of that cost to each month of use. That allocation is depreciation. Over time, you’ll see depreciation show up as an expense, reflecting the wear and tear of the asset.

• A big-ticket item that becomes an asset: If you invest in a software system that will help with operations for years, you might record the purchase as an asset. Then, monthly or yearly, you’ll see depreciation or amortization expense, spreading the cost across the life of the software.

A buyer’s guide for quick recognition

If you want to spot whether a cost is an expense (right now) versus an asset (to be used later), ask three questions:

• Do I receive a benefit in the current period? If yes, it’s likely an expense. If the benefit extends beyond this period, it’s more likely an asset (or the cost gets depreciated over time).

• Will this be used up or consumed in the near future? If yes, expense it.

• Is this thing something the company owns that will keep delivering value over multiple periods? If yes, it’s probably an asset and not an expense right away.

A few practical notes you’ll come across in real life

• Some costs are tricky. Rent is clearly an expense, but if you prepay for a year, you might recognize a portion of that payment as an asset (prepaid expense) and then expense it as time passes.

• Advertising expenses can be a big line item. The moment you pay for an ad campaign, it’s usually an expense for that period. But if an advertising contract extends far into the future and pays for results you’ll receive later, you’ll handle it with careful accounting practices to match the cost with the period in which the related revenue appears.

• Insurance: If you buy a one-year policy, you often record it as a prepaid asset and then expense it month by month as the coverage lasts. This keeps the financial picture honest and aligned with the timing of the benefit.

Bringing it back to the bigger picture

At its core, the term expenses is all about timing and impact. It’s the language businesses use to describe what it costs to generate revenue in a given period. When you compare expenses against revenue, you’re not just tallying numbers—you’re reading a story about how efficiently a company converts selling efforts into actual profit.

And yes, there’s a human side to this, too. Behind every expense, there’s a decision: where to put dollars to keep operations smooth, where to cut costs to improve margins, and how to balance short-term needs with long-term health. That sense of balance—between spending now and reaping benefits later—shows up in every balanced set of financials.

A quick mind-map you can carry around

• Expenses: costs incurred in the current period to run the business. Recorded on the income statement. Examples: rent, utilities, salaries, supplies.

• Assets: resources owned that will provide value over time. Examples: equipment, buildings, software licenses. Depreciation spreads the cost over their useful life.

• Liabilities: obligations owed to others. Examples: loans, accounts payable.

• Net income: revenue minus expenses. The profitability measure for the period.

Putting it into practice without the jargon

If you’re looking at a real-world business snapshot, try this simple exercise. Imagine you’re the owner of a small shop. Revenue for the month is $50,000. You paid $18,000 in salaries, $4,000 in utilities, $3,000 in rent, and $2,000 in office supplies. Your total expenses are $27,000. What’s your net income? It’s $23,000. Ta-da—profit is the difference between what you earned and what you spent to earn it.

From the shop floor to the boardroom

The concept isn’t just a dry counting game. It’s a compass. It guides decisions about where to invest, where to tighten, and how to plan. When you learn to read expenses as a dynamic force in financial reporting, you start to see the story the numbers tell. You begin to understand how a business allocates its cash, how it supports its people, and how it keeps its doors open for the next week, the next month, and the next year.

A few friendly reminders as you explore

• Don’t panic over every expense. Some costs are unavoidable, and many are essential for keeping quality and service high.

• Remember the timing nuance. An item can be an asset today and an expense later (or gradually through depreciation).

• Look at the bigger picture. Expenses influence net income, which in turn affects decisions about pricing, hiring, and growth.

If you’re knee-deep in financial statements, keep this in mind: the right terms aren’t just vocabulary for a test. They’re tools to understand how a real business moves money, creates value, and stays viable in a busy market. The more you connect the words to the actions they describe, the clearer the whole picture becomes.

Closing thought: the everyday magic of accounting language

Next time you see the word expenses on a page, pause for a moment. It’s more than a column label. It’s a window into how a company pays for the daily work of serving customers, delivering products, and supporting its people. It’s a clear reminder that every purchase has a reason behind it, and every line on that income statement has a story to tell about profit, risk, and growth. And that, in the end, is what makes the language of business both powerful and surprisingly approachable.