Accounting rules for Expense accounts

Transactions that increase expenditures are recorded on the debit side of the Expense accounts and transactions reducing expenditures are entered to the credit side of the Expense accounts.

The accounting principle of an entry recording for Expense accounts is the following:

In the Expense accounts: debit entries increase the balance and credit entries decrease it.

Expenditure accounts are debit balance accounts.

When a company pays wages to its employees, the increase in wage costs is recorded on the debit side of the Wages and Salaries Expense account and the corresponding payment is recorded as a decrease of cash on the credit side of the Cash account or other financial assets account. Rental costs, telephone costs, electricity costs and other costs are also accounted at their own accounts.

The Expense account is selected according to the type of expenditure, with the amount recorded on the debit side of the account, and the counter-entry made on the credit side of one of the financial accounts. The transaction's entries follow the “golden rule” of accounting without compromise: the information is always recorded in at least two accounts, on the debit side of one account and on the credit side of another.

The salary paid is accounted as the following:

The costs of goods purchased for sale (merchandise purchased for sale) are recorded on the debit side of the Purchases account. Often has to be paid also freight, customs duties, insurance premiums, etc. Such expenses directly related to the purchased goods are recorded in the Purchases (expenses) account or in their own accounts on the debit side.

If the received goods are damaged or defective, the buyer usually returns the goods to the seller and cancels the order. The seller sends a correcting invoice (credit note, credit memo or in Finnish, hyvityslasku) to the buyer for the return. Credit notes are used to cancel all order or its part in case of invoice error or damaged products. The buyer records the credit note amount on the credit side of the Purchase expense account as a decrease from the purchase expense previously recorded in the account.

Purchase costs, direct costs related to purchases and decreases from purchase costs are recorded in the accounts as the following:

If the expenditure has been accounted as overstated (too high), for example due to an incorrect payment, and the adjustment has to be made, then the decrease of expenditure is recorded on the opposite side to that expenditure, i.e., on the credit side.

The acquisition costs of the equipment are recorded on the debit side of the Equipment account. The rental expenses are recorded on the debit side of the Rental account. The telephone expenses may be accounted, for example, on the debit side of the Miscellaneous expenses account if there is no separate expenditure account for them. The Utilities Expense account, Supplies, Insurance, Advertising, Bank Fees and all other Expense accounts are processed in the same way.

If the transaction has been booked to the wrong expense account, it must be transferred to the correct one. This represents the transfer of expenses from one account to another. For example, if the cleaning supplies used for the company's office cleaning have been recorded to the Purchases account, the transfer of expenditure must be made. In this situation, the acquisition costs of cleaning supplies have to be recorded as a decrease on the credit side of the Purchase account and at the same time as an increase in costs on the debit side of the Cleaning costs account.