Contractor License Practice Exam

Which of the following is an example of an expense in accounting?

1. Cash

2. Salaries

3. Accounts Receivable

4. Inventory

The correct answer is: Salaries

The choice of salaries as an example of an expense in accounting is spot on because salaries represent the compensation paid to employees for their work and services. This payment is a necessary cost of doing business and is recorded as an expense on the income statement. Expenses are critical to understanding a company's financial health, as they reduce the net income when the income is calculated. In contrast, cash is an asset that represents liquid funds available for use. Accounts receivable, another asset, reflects money owed to the company by customers for goods or services already delivered. Inventory also falls under assets, representing goods available for sale, which costs the business money but has not yet been expensed until the goods are sold. All these elements are essential to the accounting equation, but only salaries directly impact the expense account that affects profitability during a specific accounting period.