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.
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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.