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What is a discretionary expense?

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A discretionary expense is one that could be reduced because it isn't absolutely necessary for a business to continue its daily operations. For example, a company's utility bill would be an essential expense, while research costs, entertainment costs and employee training costs would be considered discretionary. Although discretionary expenses are seen as non-essential, it is important to note that not incurring them can have a negative impact on the company, notes AccountingTools.

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Some other indicators that an expense is discretionary is that the company can control how much the expense is and it's a choice, according to Handson Banking. Companies can reduce these expenses when they encounter financial difficulties, but cutting back discretionary expenses like advertising costs, equipment maintenance or employee training can have a long-term negative impact on the company.

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