What are expenses in accounting and their types?

Companies rely on expense accounts to keep track of how much they spend on operations that help ensure their sustainability

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What are expenses in accounting and their types?
What are expenses in accounting and their types?

Companies rely on expense accounts to keep track of how much they spend on operations that help ensure their sustainability. These accounts are part of the larger profit and loss statement that shows the company's financial position at the end of the accounting period. Learning about account expenses can help you create accurate financial statements.
What are expenses in accounting and their types?
What are expenses in accounting?
In accounting, expenses are the money that is spent and the costs that a company incurs to generate profits. Account expenses are the fees for running a company that, when taken together, lead to profitability. Although they may seem interchangeable in everyday speech, there is a big difference between "cost" and "expense" in bookkeeping.
The money you spend to purchase any asset, one may refer to as a cost. The use and depreciation of these assets are costs. Although the company's acquisition of a vehicle is an example of a cost, payments for gasoline and maintenance are expenses; However, not every cost constitutes an expense. In a company's financial statements, all expenses are documented. Companies can determine the company's total profit by total sales minus expenses.
Types of expenses in accounting

1. Non-operating expenses
Non-operating expenses are a business's costs of activities that are not directly related to its day-to-day operations. They are incidental costs that occur due to business transactions. Examples include investment losses, weather damage expenses, fire damage expenses, and restructuring costs.

2. Fixed expenses
Fixed expenses remain the same when compared between two consecutive months. Examples include rental and cable bills. Its consistency also means it's predictable, so the company that pays monthly rent knows the exact amount you're paying each period. Fixed costs can vary slightly or significantly over time, depending on certain factors. For example, the company's rent may increase after the initial agreement expires. These expenses are generally non-negotiable, and companies pay them regularly.
3. Variable expenses
These are costs that change over payment periods. They include the cost of raw materials, travel fees, and marketing and advertising fees. These differences may arise internally through the company's activities or externally. For example, a company cannot influence the cost of raw materials or air tickets, but it can determine how much it spends on advertising each period.

4. Tax expenses
Taxes are legal payment obligations for engaging in business activities. Examples of taxes include income, sales, and property taxes. Taxes are an important component of the three basic financial statements, which are the income statement, balance sheet, and statement of cash flows.

5. Administrative expenses
Administrative expenses are costs incurred by a business that are not directly related to producing a good or making a sale. Examples include pay and benefits for executives, insurance, legal and accounting fees. Administrative expenses may also include travel costs and costs for office supplies.
Administrative expenses do not include the wages of employees who directly contribute to the manufacture of the goods sold by the company. The expenses of these individuals usually appear in the cost of goods sold. When preparing an income statement, administrative costs usually appear below the cost of goods sold, as together they make up the administrative, general, and selling expense items.

6. Rental expenses
The cost of renting property of any kind is calculated as a rental expense. When using the cash basis of accounting, the rental expense for an accounting period is equal to the rent paid during an accounting period.
Calculating rental expenses on an accrual basis is somewhat more complicated because it requires the accountant to keep track of the lease period that falls within the accounting period rather than just the cash flow.
7. Selling and distribution expenses

Selling and distribution expenses include any costs related to the sales and distribution activities of the business. These include:
The cost of shipping goods to customers.
Commission and royalties on sales revenue.
Salaries and wages of sales and distribution staff.
Promotional and marketing expenses.
Sales office operating costs such as electricity and rent.
Distribution operational costs, such as the cost of fuel used in deliveries to customers.
Consumption of delivery vans and fixtures installed in retail outlets.

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