Expense Account

1. Expense is the use of resources to generate revenue 2. Expense is recognized when related revenue is recognized --> this is called "matching principle" * Debits and credits 1. Expense accounts have normal balances on the debit side 2. Increases in expense accounts are recorded on the debit side 3. Decrease in expense accounts are recorded on the credit side

Examples of expense accounts   Cost of goods sold       Selling, general and administrative expenses   Salaries expense   Advertising expense   Rent expense   Travel expense   Communication expense       Insurance expense   Supplies expense   Utilities expense   Depreciation expense       Other expenses and losses   Interest expense   Income tax expense

Practice Questions  1. On November 1, 2010 Entity A purchased 500 units of merchandise at the price of $10 per unit and paid full amount in cash 2. On November 12, 2010 Entity A sold 200 units of merchandise at the selling price of $14 per unit and received full amount in cash 3. Prepare journal entries at the following dates (1) November 1, 2010 (2) November 12, 2010 4. Journal entry at November 1, 2010   debit credit Merchandise 5,000         Cash   5,000 5. Journal entry at November 12, 2010, to record revenue   debit credit Cash 2,800         Sales revenue   2,800 6. Journal entry at November 12, 2010, to record expense   debit credit Cost of goods sold 2,000         Merchandise   2,000 7. Sales revenue = $2,800 Cost of goods sold = $2,000 Gross profit = Sales - Cost of goods sold = $2,800 - $2,000 = $800 8. At December 31, 2010 Balance of merchandise = 300 units x $10 = $3,000