Classifying business expenses is a critical step in the financial management process. It’s the action of recording and organizing all business expenses in an orderly fashion. This means establishing categories for expenses that come from different sources—such as cost of goods sold, payroll, and rent—and then assigning expenses to those categories. By doing this, businesses can easily monitor their spending patterns and make better decisions about how to allocate their resources. With careful classifying of business expenses, companies are more likely to be able to recognize potential problems before they become costly issues.