Which of the following best describes an expense?

An expense is best described as an outflow of resources representing the cost of doing business, which aligns perfectly with the correct choice. This definition captures the essence of expenses as they are incurred to generate revenue. When a business incurs an expense, it typically involves spending resources, such as cash or incurring liabilities, which is necessary to conduct operations, produce goods or services, and maintain the overall functionality of the company.

This understanding is crucial for financial reporting and analysis, as expenses directly affect the profit and loss statement. By accurately identifying and categorizing expenses, businesses can assess their efficiency, profitability, and long-term viability.

In contrast, a choice mentioning an increase in cash reserves refers to a cash inflow rather than an expense. Similarly, the description of the value of goods and services owned pertains to assets, not expenses. Lastly, while expenses can indeed affect equity by reducing it, the notion that they increase equity through revenue generation is misleading, as revenue would typically be recognized separately from expenses. Therefore, the characterization of expenses as an outflow of resources aptly encapsulates their role within a business's financial framework.