Expenses represent the gross outflow of (net) assets resulting from the profit-directed activities of the firm.
APB Statement No. 4, paragraph 154, defines expenses as gross decreases in assets or gross increases in liabilities recognized and measured in conformity with generally accepted accounting principles that result from the profit directed activities of an enterprise that can change owners' equity.
Expense recognition must be accompanied by an decrease in the net assets of the firm (assets must decrease, or liabilities must increase as a result of revenues being realized).
According to Concepts Statement No. 6, paragraph 81, expenses represent actual or expected cash outflows that have or will occur as a result of the entity's ongoing major or central operations.
Expenses are the costs associated with
revenue of the period, often directly but frequently indirectly through
association with the period to which the revenue has been assigned.
Associating cause and effect: Some costs are recognized as expenses on the basis of a presumed direct association with specific revenue. (APB Statement No. 4, paragraph 157)
Systematic and rational allocation: In the absence of a direct means of associating cause and effect, some costs are associated with specific accounting periods as expenses on the basis of an attempt to allocate costs in a systematic and rational manner among the periods in which benefits are provided. (APB Statement No. 4, paragraph 159)
Some costs are associated with the current accounting period as
because (1) costs incurred during the period provide no discernible
benefits, (2) cost recorded as assets in prior periods no longer
discernible benefits, or (3) allocated costs either on the basis of
with revenue or among several accounting periods is considered to serve
no useful purpose. (APB Statement No. 4, paragraph