What-are-Expenses

The amount spent to enjoy benefits from goods and services is known as Expenses. In this article, we will cover the meaning and types of Expenses. 

What are Expenses

It means the amount spent by the business for running the business operation. The expenses are also known as Revenue Expenditure. In other words, The amount spends on running the process of production and purchase of goods. This is a routine expense and will have to pay again and again

In short, we will drive the benefit from these expenditures in the current year only.

The types of Expense

It can be divided into two types. These are explained as under:

1. Direct:-

The amount which is related to the production process or purchase of goods is called direct expenses. In other words, all amounts have a direct relation with the process of production of goods and purchase of goods.

Why this is separated into a different group?

Because with the help of these we can calculate the Gross profit of the business in a particular financial year.

These are differed as per the model of business. We are further classified them into two major subcategories explained as follows: –

  1. For the Manufacturing Business model
  2. For the Trading Business Model

Examples: –

  1. In Manufacturing Concern:
    1. Purchase of Raw Material
    2. The wages paid to the factory worker
    3. Factory Staff salary
    4. Factory Lighting and Heating
    5. Freight or carriage inwards
    6. Octroi on the Purchase of Raw Material
    7. Factory rent
    8. Factory utilities
    9. Factory building insurance
    10. Depreciation on Plant and Machine
    11. Equipment setup costs
    12. Equipment Repair and maintenance
    13. Factory supplies
    14. Factory small tools and die
    15. Import Duty
    16. Custom Duty
    17. Dock Charges
    18. Fuel, Gas, and Water
    19. Royalty
    20. Packaging Material or charges
    21. Commission on Purchase
  2. In trading Concern
    1. Purchase of Goods
    2. Freight or carriage inwards
    3. Octroi on the Purchase of goods
    4. Unloading of goods
    5. Import Duty
    6. Custom Duty
    7. Dock Charges
    8. Packaging Material or charges
    9. Commission on Purchase

2. Indirect: 

The amount which is not related to the production process or purchase of goods is called indirect expense. In other words, all amounts other than the direct expenses are known as indirect expenses. These are separated to calculate the Net profit of the business in a particular financial year.

Examples: –

  1. Salary of the office employees
  2. Electricity Bill
  3. Rent
  4. Taxes
  5. Freight or carriage outwards
  6. Traveling Expense
  7. Printing and Stationery
  8. Postage and Telegram
  9. Commission paid on Sales
  10. Publicity and Expense
  11. Accounting and Auditing Fee
  12. Legal fee
  13. Office Expense
  14. Repair and maintenance
  15. Staff Welfare
  16. Group Insurance of employee
  17. Depreciation
  18. Bad debts
  19. Office building insurance
  20. Mobile and Telephone Expense
  21. Interest
  22. Miscellaneous Expense

Differences between the Direct and Indirect:

Direct and Indirect Expenses: Differences

You can also read the following topics: –

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