Expenses in accounting: Categories and examples

Understanding expenses goes beyond simply recording costs. How expenses are categorised directly affects financial statements, cash flow analysis, and tax outcomes. When businesses apply the right expense categories, they can pinpoint cost drivers, spot inefficiencies early, and ensure expenses are reported correctly for audits and tax filings. This guide breaks down the main accounting categories for expenses and shows how each one is used in real-world scenarios.

What are accounting categories for expenses?

Accounting categories for expenses are standardised classifications used to record and analyse business spending. These categories help organise expenses based on their nature, purpose, and financial impact. Proper categorisation supports accurate financial statements, simplifies tax preparation, and enables better cost control.

Common expense categories include:

The classification of expenses in accounting helps businesses compare performance across periods, forecast future costs, and make informed financial decisions.

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Accounting categories for expenses

Expenses can be categorised in several ways depending on how they impact business operations, financial reporting, and taxation. The following sections outline the most common accounting expense categories, along with brief descriptions.

Operating expenses

Operating expenses are costs incurred in the normal course of running a business. These accounting categories include expenses such as rent, utilities, salaries, marketing, and office supplies. They are necessary for maintaining daily operations but are not directly tied to production.

Examples include:

Non-operating expenses

Non-operating expenses are costs not directly related to core business activities, typically from financing or investing activities. For instance, interest paid on a business loan would be recorded as a non-operating expense.

Examples include:

Fixed expenses

Fixed expenses are costs that remain largely unchanged regardless of a company’s level of production, sales volume, or business activity. These expenses are predictable and recur on a regular basis – monthly, quarterly, or annually.

Examples include:

Variable expenses

Variable expenses fluctuate based on a company’s level of activity, sales volume, or production output. As business activity increases, these expenses rise; when activity decreases, they fall. Variable expenses are closely tied to operational performance and demand.

Examples include:

Semi-variable (mixed) expenses

Semi-variable expenses contain both fixed and variable components, meaning part of the cost is constant while the remainder changes based on activity levels. They can be more complex to analyse, as they require separating the fixed baseline from the variable portion.

Examples include:

Capital expenses (CapEx)

Capital expenses (CapEx) are investments made to acquire, upgrade, or extend the life of long-term assets that provide value over multiple accounting periods. Instead of being expensed immediately, these costs are capitalised and gradually expensed through depreciation or amortisation.

Examples include:

Cost of goods sold (COGS)

Cost of Goods Sold (COGS) include all direct costs associated with producing goods or delivering services. They are closely tied to production processes and must be matched against revenue to calculate gross profit accurately.

Examples include:

Deductible expenses

Deductible expenses are costs that tax authorities allow businesses to offset against taxable income, provided they are incurred for legitimate business purposes. Accurate classification helps businesses reduce tax liability while avoiding errors during audits or reviews.

Examples include:

Non-deductible expenses

Non-deductible expenses are costs that cannot be used to reduce taxable income under applicable tax regulations. While these expenses still need to be recorded for accounting completeness, they must be clearly separated from deductible costs.

Examples include:

Best practices for accurate expense recording and reporting

Following best practices will help you ensure transactions are recorded in the right accounts, and generate precise reports that support forecasting. It further reduces audit risks and overspending across teams and departments.

Implement a clear expense policy

A clear expense policy serves as the foundation for an accurate expense management solution. It establishes the rules and expectations for employee spending, reimbursement, and reporting. It should outline eligible expenses, required documentation, approval workflows, and timelines. Clear policies reduce confusion, prevent misuse of company funds, and facilitate approval processes.

Use automated accounting software

Manual bookkeeping is prone to errors and time-consuming. Automated accounting software not only speeds up the process but also ensures accuracy. Integration with multiple systems means that data from credit cards, bank accounts, and invoices can flow into a single platform. This reduces administrative overhead and enables real-time financial reporting.

Automated workflows are especially useful for recurring transactions such as software subscriptions, marketing tools, or travel expenses, which can be categorised consistently without manual input.

Perform regular audits

Regular audits help catch errors and irregularities before they impact financial reporting. Review expense submissions for missing receipts, mismatched approvals, or unusual patterns such as repeated high-value transactions. Compare reported expenses against budget allocations to spot overspending early. It is equally helpful to establish a schedule for both random and systematic checks to improve processes over time. This proactive approach not only ensures compliance but also strengthens internal controls.

Classify expenses consistently

Establish clear categories such as travel or software subscriptions, and apply them consistently across all departments. Consider subcategories or cost centers for projects, teams, or regions to track spending in detail. In addition, train employees on proper tagging and review expense entries regularly to catch misclassifications early. This approach makes reporting precise, and ensures that financial statements reflect the organisation’s true spending patterns.

Set clear budget limits

Setting clear budget limits helps control spending and prevents cost overruns while keeping teams accountable. With card solutions that offer adjustable spending limits and controls on cards or card groups, finance teams can define how much each individual, team, department, or project can spend. This visibility into actual spend helps finance teams intervene early if patterns indicate potential over‑expenditure.

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Elena Tankovski · Content Marketing Manager

As Senior Content Writer at amnis, Elena transforms complex financial and banking topics into clear, insightful content for SMEs. She focuses on areas such as the FX market, international payments, cross-border business operations, and regulatory updates - ensuring companies have access to reliable and easy-to-understand guidance.

With a strong background in research and communication, Elena plays a key role in helping businesses stay informed, make smarter decisions, and navigate the evolving world of international finance.