Expenses are the costs associated with running a business and earning revenue. These can include direct costs such as materials and labor for goods sold, as well as indirect costs like rent, utilities, and marketing. Expenses are typically classified into operating and non-operating expenses.

Operating expenses cover day-to-day business operations, including salaries for employees, office supplies, and insurance. Non-operating expenses, on the other hand, include costs that aren't related to the main business operations, such as interest expense and losses from asset disposals. Proper expense management is critical for maintaining a business's financial health.

For example, a company might record utility bills as an operating expense in its month-end checklist, ensuring accurate financial reporting. Expenses directly impact the profit and loss statement, reducing the net income. Understanding and categorizing expenses correctly is crucial for creating effective balance sheet reconciliations and accurate financial statements.