Does an expense appear on the balance sheet?

When you record an expense, it most obviously appears within a line item on the income statement. It also appears more indirectly on the balance sheet in the following ways:

• An expense reduces profits, so when you record an expense, the retained earnings line item within the equity section of the balance sheet will always decline by the same amount as the expense.

This change in equity always occurs. In addition, either the asset side of the balance sheet will decline or the liabilities side will increase by the amount of the expense, thereby keeping the balance sheet in balance. Here are examples of where the changes may occur:

• Assets. Cash declines if you paid the expense item in cash, or inventory declines if you wrote off some inventory.
• Contra asset accounts. The accumulated depreciation contra account increases if you created a depreciation charge.
• Liabilities. Accrued expenses increase if you created an expense accrual, or accounts payable increase if you recorded a supplier invoice that is not yet paid.

Related Topics

Balance sheet overview
Classified balance sheet
Common size balance sheet
Comparative balance sheet
Should there be negative cash on the balance sheet?
Where do accruals appear on the balance sheet?