What are expenses in accounting?

Expenses in accounting refer to costs incurred in the process of generating revenue. This encompasses all expenditures that a business incurs during its operations, such as rent, salaries, utilities, and materials. These costs are essential for the day-to-day functioning of the business and are deducted from total revenue to calculate net income, which ultimately affects profit margins.

Understanding that expenses are directly linked to revenue generation is crucial in accounting. It helps businesses analyze their operational efficiency and manage their budgets effectively. By monitoring expenses, companies can make informed decisions to improve profitability, control costs, and allocate resources wisely.

In contrast, the other options do not adequately define expenses. Total revenue minus total profits does not reflect the nature of expenses; instead, it represents a different calculation related to profitability. The total assets held by a company refers to what it owns, rather than what it spends. Revenue from non-operating activities pertains to income generated outside of core business operations, which again does not capture the definition of expenses.