Expense is simply a decrease in the net assets of the entity over an accounting period except for such decreases caused by the distributions to the owners. The first aspect of the definition is quite easy to grasp as the incurring of an expense must reduce the net assets of the company. For instance, payment of a company's utility bills reduces cash. However, net assets of an entity may also decrease as a result of payment of dividends to shareholders or drawings by owners of a business, both of which are distributions of profits rather than expense. This is the significance of the latter part of the definition of expense. - See more at: http://accounting-simplified.com/expense.html#sthash.VpVAq7y5.dpuf