Expense Account in Business: A Beginner’s Guide

An expense account is a ledger account where a business records one type of cost, such as rent, salaries or advertising. Each time the business incurs that cost, the amount is debited to the account, so its balance shows the total spent on that cost so far in the year. A business has one expense account for each type of cost it wants to see separately, and they all sit in its general ledger and chart of accounts.

Billed publishes this page. Definitions are quoted from OpenStax, Principles of Accounting, Volume 1: Financial Accounting, chapters 2 and 3, opened on October 30, 2026. For choosing expense categories, see business expense categories, and for numbering accounts, see what is a chart of accounts.

What an Expense Account Is

OpenStax defines an account as a "record showing increases and decreases to assets, liabilities, and equity found in the accounting equation", and an expense as a "cost associated with providing goods or services" (chapter 3 key terms; chapter 2 key terms).

Its section 3.2 adds when an expense is recorded: "A business does not have an expense until it is “incurred.” Incurred means the resource is used or consumed."

How Entries Reach an Expense Account

OpenStax's section 3.5 states the rule: "Expense accounts increase with debit entries." So:

• When you incur the cost, debit the expense account and credit cash, or accounts payable if you'll pay later.
• When part of the cost is refunded or credited, credit the expense account.
• The normal balance is a debit. OpenStax defines the normal balance as the "expected balance each account type maintains, which is the side that increases".

Each expense account lives in the general ledger, which OpenStax describes as a "comprehensive listing of all of a company’s accounts with their individual balances".

Common Expense Accounts

A small service business might have expense accounts such as:

• rent;
• salaries and wages;
• utilities;
• advertising;
• insurance;
• software subscriptions;
• bank and payment fees;
• depreciation.

For the categories a US sole proprietor reports on Schedule C, see business expense categories.

Creating Your Own Expense Accounts

• Name each account for one kind of cost, in plain words, such as Software Subscriptions.
• Give it a number in the expense range of your chart of accounts; see what is a chart of accounts.
• Keep the same accounts all year, so this year's figures can be compared with last year's.
• Keep a miscellaneous account small. If one kind of cost keeps appearing there, give it its own account.
• Ask your accountant before you set up or change accounts that feed your tax return.

At year-end, expense accounts are closed so the new year starts at zero; see 6 steps to close your accounting year.

Worked Example: One Month in an Advertising Expense Account (sample figures)

These are sample figures for a fictional business, invented for this example. In March:

1. March 2: pays $300.00 for online ads. Debit Advertising Expense $300.00; credit Cash $300.00.
2. March 16: a printer delivers flyers for $150.00, to be paid next month. Debit Advertising Expense $150.00; credit Accounts Payable $150.00.
3. March 28: the printer gives a $30.00 credit for a misprint. Debit Accounts Payable $30.00; credit Advertising Expense $30.00.

The entries balance: debits $300.00 + $150.00 + $30.00 = $480.00; credits $300.00 + $150.00 + $30.00 = $480.00.

The Advertising Expense account for March:

• Debits: $300.00 + $150.00 = $450.00
• Credits: $30.00
• Balance: $450.00 − $30.00 = $420.00 debit, the month's advertising cost

The printer is now owed $150.00 − $30.00 = $120.00, which sits in Accounts Payable, not in the expense account.

Where Billed Fits

Billed's expense tracking page says: "An expense in Billed records who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry." It adds: "Billed's expense report can group your expenses by category." For expense reports, see types of expense reports.

When This Guide Isn't for You

If your business has inventory, payroll or assets to depreciate, or you're setting up accounts for a tax return, ask your accountant which expense accounts to use and how each cost should be recorded.

Related Guides

• Business expense categories
• What is a chart of accounts?
• Types of expense reports
• What is a general ledger?
• What is a journal entry?

FAQ

What is an expense account?

A ledger account where a business records one type of cost, such as rent or advertising. OpenStax defines an expense as a "cost associated with providing goods or services".

Is an expense account a debit or a credit?

Expense accounts increase with debit entries, so their normal balance is a debit. A refund or credit for part of the cost is recorded as a credit to the account.

What is the difference between an expense account and an expense category?

An expense account is a ledger account in your books. An expense category is a label you give an expense, for example when you record it or report it. Each category can map to an expense account.

When is an expense recorded?

OpenStax says: "A business does not have an expense until it is “incurred.” Incurred means the resource is used or consumed." In this page's sample, the flyers are recorded as an expense on March 16, when they're delivered, even though they're paid for later.