Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

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Expenses are the costs incurred in running a business, often necessary to generate revenue.

Example: For “Sunny Bakes," expenses include:

1.  Cost of Goods Sold (COGS): The cost of flour, sugar, and other ingredients.

2.  Operating Expenses: Employee wages, rent for the bakery premises, utility bills, marketing costs, and insurance premiums.

By categorising and tracking expenses carefully, Sarah can determine areas where costs might be reduced to improve the bakery's profitability.

Real-life Insight: Expenses are vital for understanding the profitability of a business. For instance, differentiating between fixed (e.g., rent) and variable (e.g., ingredients) expenses helps in strategic financial planning.