Expense Accounts are the accounts a company uses to categorize its expenses on the 📝Income Statement.
Each expense account collects costs of one kind, such as salaries, rent, or software, so operating spending can be read by category. Expenses are recorded as debits to these accounts and reduce owners' equity in the period they are incurred; purchases of long-lived assets are instead capitalized on the balance sheet and depreciated over time. Expense accounts sit within the numbered 📝Chart of Accounts, alongside asset, liability, equity, and revenue accounts.
A practical structure groups expense accounts under seven major category accounts:
- 6000 Salary & Related
- 6100 Sales & Marketing
- 6200 Professional Services
- 6300 Communications & IT
- 6400 Travel & Entertainment
- 6500 Facilities & Related
- 6600 General and Administrative
Many companies also need a Product Development or Research and Development account.
When restructuring the expense section, I add these seven main category accounts first, then edit each existing expense account to be a sub-account of one of them.