Expenses
Expenses are decreases in assets or increases in liabilities that reduce equity, other than distributions to holders of equity claims. They include costs of resources consumed in earning revenue and losses. Recognise them under accrual accounting when the relevant event occurs, which may differ from when cash is paid. Some payments first create assets and become expenses as benefits are consumed.
Worked example
Paying $12,000 for a year’s insurance initially creates a prepayment; after three months, $3,000 is expense and $9,000 remains prepaid.
Common mistake
Owner drawings and ordinary dividends reduce equity but are distributions, not expenses. Buying equipment is not normally an immediate expense in full.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | F2 | Direct | July 2027–August 2028 |
| ACCA | F3 | Supporting | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |