In accounting, what is the effect of an expense on the income statement?

An expense reduces the net income on an income statement. The income statement summarizes a company’s revenues and expenses over a specific period, ultimately leading to the calculation of net income or loss. When an expense is recorded, it is deducted from total revenues. This deduction directly reduces the figure for net income, reflecting the costs incurred to generate revenue during that period.

Understanding this relationship is crucial, as it highlights how expenses represent the costs of doing business that must be covered in order to generate profits. Consequently, accurately accounting for expenses is vital for maintaining an accurate picture of a company's financial performance.