i never understood the difference between a "bill" and an "expense". my confusion in understanding comes from the idea that a small retail trader for example, pays for 2-3 things.

either capital goods, or purchases of trading goods or expenses. Now, all of these are technically purchases". Just that your accounting ledger defines the further classification. Now, all of these require "invoice", at least in india, that means you can't just say "i paid inr 500 for fuel" without a receipt/invoice. So what is a bill and how is it different than being expensed?

The difference is that a bill is saying "I've done this work for you: now pay me". Or "I've given you these products: now pay me".

But an expense claim is saying "When I was doing what you asked me to do, I had to pay some money on your behalf, so please refund me".

A bill is an invoice you send to someone else, to request payment.

An expense is an invoice someone sends to you for payment. This “invoice” might be as simple as a docket from a cash register.

If you receive an invoice from someone, it can be classified as an expense if it’s legitimately part of your business - depending on local law. If it is an expense then it’s deducted from your income so that you don’t get taxed on it - you should only be taxed on profit, not revenue.

If it’s not a legitimate business expense then you can’t deduct it from your income and the tax you pay is higher.

A bill or an invoice is a document created by the vendor asking the customer to pay. Sometimes you are the vendor and raise an invoice asking the customer to pay. Other times you are the customer, and your vendors send you invoice asking YOU to pay.

It is generally accepted practice in accounting that all outgoing payments should have an invoice from a vendor. Also all incoming payments should have an invoice/receipt raised by you.

Whether something is an expense depends on what you are paying for. If the vendor's invoice is for goods that you are reselling, that is not an expense. That goes to inventory. Similarly when you pay an invoice from your heavy equipment supplier, that is not an expense, that goes to your equipment & machinery. However, when your vendor invoice is for something like janitorial service, utility bills, lawyer fees etc, these are classified as expenses and hence its 'expensed'.

It’s a case of before or after the payment occurs - some businesses want it all handled via invoice so they can check things first.

Usually it’s just internal processes - Uber can be expensed, gas cannot.