Related: Q&A: What Does a 'Fiscal Year' Mean? Examples of expensesĮvery business has expenses that are unique to the industry or company. Non-operating expense: Non-operating expenses are those costs that aren't related to how a business functions. These are the costs of machines, rent, utilities and wages. Operating expense: Operating expenses are those costs related to making a product or providing a service. For example, your electric bill will be higher if you are open more hours and you will pay more in commissions as your sales increase. Variable expense: A variable expense does change with the amount you produce or sell. A good example of a fixed expense is rent - you will pay the same amount for the space no matter how many products you sell. This means that you will not pay a different amount if you sell more or less.
Here are the four kinds of expenses:įixed expense: A fixed expense is a cost that does not change with the amount of production. Different kinds of expenses are also reported differently on financial statements. It is important to understand how these expenses affect a business so that you can develop budgets and business plans.
/expense-5ae4543cb46948f0b3cd83e2b689d776.jpg "expenses meaning")
Related: How Analyzing Data Can Improve Decision-Making Types of expensesĮxpenses are categorized based on how they relate to doing business and whether they change with the production of a product or service. Having clearly, consistently recorded expenses lets you readily see how profitable a company is. Profitability is the difference between revenue and expenses. You can quickly determine a company's profitability. You can see what expenses are unnecessary or can be decreased, which helps improve profitability. Tracking expenses allows you to easily find and report them during tax season. This lets you prepare for an increase in wages during busy periods or increases in utility costs during winter or summer. Since each expense is recorded under a category, you can see how much is spent on each category and how those costs change over time. You can see separate expenses by category. This helps you lower costs, allocate resources and compare the cost of doing business over time. Because expenses are directly related to the revenue they generate, you can see how much you spend as you do business. You can track the costs of doing business. Here are some reasons why expenses are an important part of doing business: Related: The Value of Increasing Your Business Vocabulary Why are expenses important? Expenses are recorded under specific accounts in the accounting books-electricity, internet and water would be recorded under "Utilities." For example, employee wages are recorded when the hours are worked, not when paychecks are cut, distributed to the employees or clear the employee's bank. This also means that the expenses are recorded when the expense happens, rather than when it is paid. So, wages are recorded with the profits from the day the employee worked. In accrual-based accounting, expenses are matched with a source of income on the financial statement. Costs represent a broad category that refers to how much you spend on something, regardless of how it relates to generating income. While expenses and costs are terms often used interchangeably, expenses are tracked for the profit and loss statement and can impact taxes. They are often paid periodically, as in the case of wages or monthly utility bills. Basically, expenses are the money you spend while doing business.
#Expenses meaning how to
Related: CFA Exam: How To Advance Your Financial Career What are expenses?Įxpenses are costs that are related to revenue generation. In this article, you will learn what expenses are, the different kinds of expenses and why they are important. Understanding what expenses are and how they work will help you organize financial records and allow you to better track the costs of a business. One of the important aspects of this tracking is expenses. Every business needs to track its income and spending to measure profitability and to prepare financial documents.
0 kommentar(er)
