Expenses is classified as an which type of account?

• A. Asset
• B. Owner's Equity
• C. Expense
• D. Revenue

Answer: (B)

The main idea is where expenses fit in account classifications. Expenses are a cost of doing business and are tracked on the income statement as a distinct type of account called an expense. They aren’t assets, they aren’t part of revenue, and they aren’t a component labeled as owner’s equity. In the accounting equation, expenses reduce net income, which in turn lowers retained earnings, a part of owner’s equity, so expenses affect equity but are not themselves equity accounts. In double-entry bookkeeping, expenses carry a debit balance, while revenues carry a credit balance and owner’s equity accounts normally carry credits. When you incur an expense, you debit the expense account and credit cash or a liability. Because expenses are about costs that reduce equity through lower net income, the correct classification is an expense account.