Which Is Not An Expense Account? Find Out The Correct Answer
by Shahnawaz Alam Finance 15 September 2023
Which is not an expense account?
The correct answer is – Accrued.
Businesses can use expense accounts to better manage their costs and calculate where they are spending more than necessary.
If you are a business owner or someone who manages the expenses of a business, then you must know what cost accounts are. More so, you should also know what business expenses are not.
In this article, you will find the answer to which one of the options mentioned is not an expense account.
What Is An Expense Account?
Expense accounts are a specific type of financial record for tracking different costs a business incurs. This accounting method allows firms to charge expenses to a particular account, allowing them to stop lumping all the expenses with business operating expenses. Businesses can keep their finance streamlined and segregated thanks to this type of business expenses account.
A financial expert or a business accountant can benefit from an expense account and better monitor business expenses. What’s more interesting is that these accounts return to zero at the end of the accounting period.
An expense account includes different types of payments or expenses. Some of them would relate to –
- Payroll expenses
- Selling expenses
A double-entry accounting system works by increasing and decreasing expenses through debit and credit entries, respectively.
This type of account not only allows a business to manage its expenses but also helps it keep its accounting transparent and streamlined.
Also, businesses that reimburse employee spending can use expense accounts to keep tabs on their spending. For example, if one of the employees is adding meal expenses during their travel frequently, the finance manager can find out. This will allow them to choose between necessary and unnecessary employee expenses and spend accordingly.
More importantly, businesses better understand their spending patterns with expense accounts.
Which Is Not An Expense Account?
Returning to the abovementioned question, which is not an expense account? An expense account is never a saving, a checking, or an investment account.
An expense account usually helps account holders save money and cut expenses. It can be used for both personal and business expenses.
Individuals and businesses can use expense accounts to stay on their budgets or track their expenses. Businesses can use it to keep their operating and employee expenses separate.
Out of the five different options mentioned above, an Accrued account is not an expense account. Read the section below to understand why.
Why Is an Accrued Account Not An Expense Account?
An accrued expense is usually recorded as an expense incurred during an accounting period. But this expense is not yet paid for. Usually, it is a debit to an expense account. An accrued expense increases an account holder’s expenses.
This expense is incurred during a specific accounting period, and it remains until the next accounting period. The accrual accounts are different from accounts payable transactions. The reason is that the invoices are yet to be received and entered into the system before the year ends. However, an expense account goes back to zero at the end of the accounting period.
Also, the accrued account allows businesses to record revenue before the business gets payment for their services or goods. On the other hand, expense accounts are for tracking expenses only.
Different Types of Business Accounts
A business can identify different types of expenses and use different types of expenses to streamline them. It will help them track their cash flow and spending habits to help boost their profitability.
Here are the different types of expenses –
Operating expenses of a business are the expenses that help a business generate its revenue. The company’s income statement includes a business operating expense. Operating expenses include advertising, repairs and maintenance, insurance payments, payroll, travel, rent & utilities.
Non-operating expenses, as the name suggests, include expenses not required to run a business. They are not related to core business operations. Some of these expenses include foreign exchange losses, restructuring expenses, interest paid, inventory losses, etc.
Fixed expense accounts include expenses that do not alter at the end of the accounting period. These accounting processes help make budgeting simpler. Most importantly, fixed expenses do not change or fluctuate.
Variable expenses of a company are related to the output production of a company. This type of expense can vary as the output of the company’s goods and services increases or decreases. Some of the common examples of variable expenses would be raw materials, packaging supplies, credit card fees, entertainment expenses, direct costs for labor, and sales commission.
How To Identify An Expense Account?
Which is not an expense account? Once you have an idea of how to identify one expense account, you will better understand what is and which is not an expense account.
If you are trying to identify an expense account, look for the characteristics mentioned below –
- An expense account is used for tracking expenses. These expenses are only related to business expenses. However, an expense account is not a personal account.
- Businesses usually set up an expense account with a specific need in mind. For example, recording travel expenses or. This means that the account has a specific limit as to how much can be charged as an expense to the account.
- Also, someone working within the company (a business manager/finance manager) usually manages the expense account and keeps track of the spending.
The different expense accounts mentioned among the provided alternatives are –
All of these expenses come under business expenses for core business operations or other different types of business expenses. However, accrued expense accounts do not count as an expense account. One must understand which is an expense account and which is not an expense account. This account deals with expenses for doing business and recording those expenses. But that does not mean all expenses should go to an expense account.
This type of account is used for recording and streamlining business expenses. Hopefully, this article will provide you with the necessary information you need. However, if you have any queries related to this, let us know through the comment section.