Fundamental Payroll Certification (FPC) Practice Exam

What is an expense account?

1. A record of all employee wages

2. A list of liabilities owed by the company

3. An account detailing costs for goods and services consumed

4. A summary of company profits and losses

The correct answer is: An account detailing costs for goods and services consumed

An expense account is an account that specifically records costs associated with goods and services consumed by a company during its operations. This includes all expenditures necessary for the functioning of the business, such as rent, utilities, salaries, and supplies. By tracking these costs, organizations can assess their financial health and operational efficiency. Proper management and understanding of expense accounts are crucial for budgeting, forecasting, and financial reporting, as they highlight the spending patterns of a company and how they impact profitability. The other options do not accurately define an expense account. An account recording all employee wages pertains to payroll or wage liabilities rather than expenses broadly. A list of liabilities owed by the company describes obligations rather than costs incurred. Lastly, a summary of company profits and losses refers to financial performance over a period and is typically captured in an income statement rather than a specific expense account.