What are expense accounts?
Definition of expense accounts
Expense accounts are categories within the business's books that show how much it has spent on its day-to-day running costs.
A debit to an expense account means the business has spent more money on a cost (i.e. increases the expense), and a credit to a liability account means the business has had a cost refunded or reduced (i.e. reduces the expense).
Expense accounts in double-entry bookkeeping
- Income accounts: what the business has earned
- Expense accounts: the business's day-to-day running costs
- Asset accounts: what the business owns
- Liability accounts: what the business owes
- Capital accounts: what is owed to or by the business owner
How debits and credits work for different accounts
To increase the amount in your business accounts, you need to debit some accounts and credit others. What you do depends on the kind of account you’re dealing with:
- for an income account, you credit to increase it and debit to decrease it
- for an expense account, you debit to increase it, and credit to decrease it
- for an asset account, you debit to increase it and credit to decrease it
- for a liability account you credit to increase it and debit to decrease it
- for a capital account, you credit to increase it and debit to decrease it
Example of an expense account:
Expense accounts might be overheads or costs of sales.
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When you pay fees to your accountant, you would record that in your books with a debit entry to the accountancy fees expense account. The opposite side would be a credit entry to your bank account, because the amount you have in your bank has fallen, as you have spent some of your cash on accountancy fees. The document above shows an example of the "Accountancy fees" expense account.
Where to find your expense accounts
Expense accounts appear on the business's profit and loss account.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.