Define an expense in accounting.

In accounting, an expense is defined as a cost incurred in the process of generating revenue. This definition captures the essence of expenses, reflecting their role in the financial performance of a business. When a company engages in activities that contribute to its revenue-generating operations – such as purchasing inventory, paying salaries, or incurring utility costs – these expenditures are recorded as expenses. They are essential for the operations of a business and are recognized on the income statement, reducing the overall profit.

Expenses directly correlate with revenue generation, as they represent the necessary outflows of resources that businesses must manage to maintain operations and achieve profitability. Unlike profits, which are derived from revenue, expenses reflect the costs that must be subtracted from total revenue to arrive at net income. This relationship is critical for assessing a company's financial health. Thus, the correct definition emphasizes the importance of expenses in the wider context of business operations and financial reporting.