Expense

Published Wednesday 30 September 2026

Table of contents

• What is an expense?
• What is an expense in accounting?
• Common examples of business expenses
• 4 types of expenses
• Business expenses vs personal expenses
• Deductible expenses in Indonesia
• How to record and track expenses
• Keep track of expenses with Xero
• FAQs on expenses
• Related terms
• Learn more about expenses

Key takeaways

• An expense is money your business spends, or owes, to earn income, and it lowers your profit for that period
• Sorting your costs into types, such as fixed or variable, shows where your money goes and where you can save
• Only some costs reduce your taxable profit, so it pays to know Indonesia’s deductibility rules before tax time
• Recording each purchase promptly, with a receipt, keeps your profit figures accurate and your business ready for a tax review

What is an expense?

An expense is money your business spends, or owes, to earn income, such as rent or wages. Every expense reduces your profit for the period it relates to.

Say your café earns Rp30,000,000 in September. If you spend Rp8,000,000 on ingredients and Rp5,000,000 on rent, those costs bring your profit down to Rp17,000,000 before other costs and tax.

Accountants and the tax office look at them a little differently. The next sections cover both views, starting with accounting.

What is an expense in accounting?

Under the International Financial Reporting Standards (IFRS) Conceptual Framework, an expense is a drop in economic benefits that reduces your equity. Under that framework, the drop happens when assets go out or liabilities build up, and payments to owners, such as dividends, don’t count. Indonesia’s Financial Accounting Standards (Standar Akuntansi Keuangan, or SAK) are built on the same framework.

In practice, these costs appear on your profit and loss statement, where they come off your revenue. Your cost of sales comes off first to give gross profit, then operating expenses and tax come off to give net profit.

Timing matters too. Under accrual accounting, you record a cost in the period you incur it, even if you pay later. That way, it’s matched against the revenue it helped earn. A September electricity bill you pay in October belongs to September on the accrual basis, while cash accounting records it in October.

Common examples of business expenses

Business expenses are the regular costs you pay to keep your business running and earning. Most small businesses pay some mix of these.

• Rent for your shop or office
• Salaries and wages for your team
• Utility bills, such as electricity and internet
• Marketing, such as social media ads and printed flyers
• Supplies, such as packaging and stationery
• Travel to meet customers and suppliers
• Bank fees and interest on business loans

Each of these costs can belong to more than one category. That’s where the four types below come in.

4 types of expenses

There are four common ways to group expenses, and each one answers a different question about your spending. A single cost can sit in all four groups at once.

1. Deductible vs non-deductible expenses

This split tells you whether a cost lowers your tax bill. A deductible cost reduces your taxable profit, while a non-deductible one lowers your accounting profit and leaves your tax unchanged.

Indonesia’s rules on which is which come later on this page.

2. Direct vs indirect costs

This split shows how closely a cost links to what you sell. According to the Corporate Finance Institute (CFI), direct costs trace to a specific product or service, while indirect costs are shared across several activities.

For a bakery, flour is a direct cost and the shop’s rent is an indirect cost. Indirect costs are often called overheads.

3. Fixed vs variable costs

This split shows how your costs move when sales go up or down. Fixed costs stay the same whatever you produce, while variable costs rise and fall with volume.

Say your online shop pays Rp5,000,000 a month in rent and Rp3,000 in packaging per order. The rent is fixed, and packaging grows with every sale, so this split helps you see where to reduce costs in a quiet month.

4. Operating expenses vs capital expenditure

This split shows how long you’ll benefit from what you’ve paid for. Operating expenses are day-to-day running costs, such as wages or electricity, and go straight to your profit and loss statement.

Capital expenditure buys something that lasts for years, such as a delivery van or an oven. You record it as an asset and spread its cost over its useful life through depreciation.

Business expenses vs personal expenses

A business expense helps you earn income, while a personal one benefits you or your family. Ingredients for your warung are a business cost, and your family’s weekly groceries are personal, even when you pay both from the same account.

Some costs are mixed, such as a phone you use for both work and home. Record only the business share, and keep a note of how you worked it out.

A separate business bank account is the simplest way to keep the two apart. It gives you a true picture of profit and cleaner figures when you work out tax.

Deductible expenses in Indonesia

Deductible expenses are business costs that reduce your taxable income, which lowers the tax you pay. As DDTC explains, Article 6 of the Income Tax Law (UU PPh) allows costs that help you earn, collect and maintain income (biaya 3M).

Article 9 of the same law sets out costs you can’t deduct. The Directorate General of Taxes (DJP) lists these among them:

• profit distributions to owners, such as dividends
• personal costs of shareholders or partners
• income tax itself
• tax penalties, including interest and fines

Capital expenditure is deducted gradually. PwC’s Indonesia tax summary says assets with a useful life of more than one year are depreciated, apart from land used in the business.

Different rules apply if your business pays the final tax for micro, small and medium enterprises (usaha mikro, kecil, dan menengah, or UMKM). Under Government Regulation (PP) 20/2026, which took effect on 22 April 2026, this regime works as follows:

• the rate is 0.5% of turnover, for businesses earning up to Rp4.8 billion a year
• individuals and sole-owner companies (PT Perorangan) can use it with no time limit
• newly registered business entities, such as CVs and PTs, can’t use it
• your costs don’t lower the tax, because it’s charged on turnover

How to record and track expenses

To record expenses well, capture each one with proof and file it in the right category. These steps work whether you use a spreadsheet or accounting software.

1. Set up expense categories in your chart of accounts, such as rent and marketing
2. Keep a receipt or invoice for every business purchase, including digital copies
3. Record each cost in the period you incur it
4. Pay business costs from a separate business account
5. Keep your books and supporting documents for 10 years, as Article 28(11) of the General Provisions and Tax Procedures Law (UU KUP) requires
6. Review your spending each month to spot changes early

The most common slip-ups are lost receipts and personal costs in business accounts. Others include booking a new van as a one-off expense and leaving entries until tax time. Catching them early keeps your profit figures accurate and saves a scramble later.

Keep track of expenses with Xero

Expenses shape both your profit and your tax bill, so recording them as they happen puts you in a stronger position all year. Xero brings in transactions through automated bank feeds, and your team can capture receipts and claim expenses from their phones.

You’ll spend less time chasing paperwork, and your records are ready for your accountant when tax time comes. Pick the plan that suits your business and get one month free.

FAQs on expenses

Here are quick answers to common questions about expenses.

What is a simple definition of an expense?

An expense is any cost of running your business that reduces your profit. Quick test: if a cost helped you earn income this period and won’t last for years, it usually counts.

Is an expense the same as a cost?

A cost is what you pay to get something, and it becomes an expense once it’s used up to earn income. Stock you buy is held as inventory, then becomes part of your cost of sales when you sell it.

Is an expense a debit or a credit?

An expense is recorded as a debit, which increases the expense account. The matching credit usually goes to your bank account or, if you haven’t paid yet, to accounts payable.

What is the difference between an expense and an asset?

An asset keeps giving value beyond the current period, while an expense is used up within it. Each year, part of an asset’s cost, such as equipment, moves onto your profit and loss statement as depreciation.

What is an expense report?

An expense report lists costs an employee paid on the business’s behalf, with receipts attached, so they can be reimbursed. It also gives you a clear trail for approvals and your books.

Can UMKM on the 0.5% final tax deduct expenses?

No, the tax applies to turnover, and the DJP confirms it’s final, so it can’t be credited in your annual tax return (SPT Tahunan). Tracking your spending still shows whether the business is making a profit.

Related terms

• Assets
• Liabilities
• Equity
• Gross profit
• Net profit
• Profit and loss statement
• Accounts payable
• Cash flow

Learn more about expenses

• Cost of goods sold (COGS)
• How to increase profits
• Startup business costs