Which is not an expense account indeed ?a)Repairs expense b)Rent expense c)Accrued expenses d)Advertising expense e)Interest expense
The Correct Answer and Explanation is :
The correct answer is c) Accrued expenses.
Explanation:
Expense accounts are used in accounting to track the costs a business incurs during its operations. Common expense accounts include repairs expense, rent expense, advertising expense, and interest expense. These accounts directly reflect the outflow of resources that a company experiences as it conducts its business activities.
- Repairs Expense: This account records costs incurred for repairing equipment or property. It reflects the maintenance needed to keep assets in working condition.
- Rent Expense: This represents the cost of leasing property or space. It’s a fixed expense that businesses incur regularly for their operational premises.
- Advertising Expense: This account tracks spending on marketing and advertising initiatives. These costs aim to promote products or services and increase sales.
- Interest Expense: This is the cost of borrowing money. Companies incur interest expense when they take loans or have credit arrangements, representing the cost of financing.
On the other hand, accrued expenses are not classified as an expense account. Instead, they are considered a liability on the balance sheet. Accrued expenses represent obligations that a company has incurred but has not yet paid. For instance, if a company receives a service in one accounting period but pays for it in a future period, it will recognize that obligation as an accrued expense. This ensures that expenses are matched with the revenues they help generate, adhering to the accrual basis of accounting.
In summary, while the other options directly represent costs incurred by the business, accrued expenses indicate liabilities that will result in future cash outflows. Recognizing the distinction between expenses and accrued liabilities is essential for accurate financial reporting and understanding a company’s financial health.