What is an expense account used for?

An expense account is utilized primarily to track costs incurred by a business. This encompasses all expenses related to the normal operations of the business, such as salaries, rent, utilities, and materials. By using an expense account, businesses can monitor their spending, analyze expenditure patterns, and assess overall financial health. Documenting expenses is essential for accurate financial reporting and budget management, as it allows for better decision-making regarding resource allocation and cost control.

Additionally, tracking expenses is crucial for determining net profit, as expenses directly affect the profitability of a business. Understanding where money is spent can also aid in identifying areas for potential savings and efficiencies.