36 Business Expense Categories for Small Businesses and Startups

Staying on top of your expenses and business budget also helps you identify problems like overspending and cash flow issues early on – so you can nip them in the bud before they become bigger concerns. If an expense is for both business and personal use, you can only deduct the portion of the expense that applies to your business. For example, if you drive a vehicle for business and personal use, you can only deduct the percentage of vehicle-related costs that apply to business use. Prepaid expenses are transactions the company has already paid for before receiving the product, good, or service. For example, if a company prepaid for a shipment of raw materials, but the supplier hasn’t delivered the materials yet, the amount paid is a prepaid expense. Lastly, you can even make your bookkeepers or accountants, or CPAs a part of your Deskera Books account by giving them access through an invitation link.

The most common way to categorize them is into operating vs. non-operating and fixed vs. variable. Capital expenditures, commonly known as CapEx, are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, an industrial plant, technology, or equipment. However, if expenses are cut too much it could also have a detrimental effect. For example, paying less on advertising reduces costs but also lowers the company’s visibility and ability to reach out to potential customers. The cost of goods sold does not include any cost incurred on inventory that is unsold at the end of an accounting period, which is why it needs to be subtracted from its calculation.

  1. An expense is money spent to acquire something — expenses includes daily transactions everyone encounters (like paying a phone bill) and big purchases made by companies (like buying a new piece of machinery).
  2. Variable expenses change regularly, typically because of increases or decreases in a company’s production.
  3. If you have health insurance through your job, you should add it to your budget—but only the portion you’re responsible for paying.
  4. The sum of all the expenses is then divided by the number of family members residing in the house in order to find each member’s share of the total expense.
  5. With QuickBooks, you can sync your business credit cards and debit cards to the app, so all your relevant transactions are automatically imported and categorised.

This guide will review the different types of expenditures used in accounting and finance. In addition to a mortgage or rent payment, costs may include types of expenses insurance, maintenance and property taxes. Property taxes are generally part of a mortgage payment—so you likely won’t need to add them to your budget.

Different Types of Operating Expenses

So you don’t forget to stash away that cash, set up automatic transfers for the amount you need to save for periodic expenses each month. Periodic expenses often get overlooked because they aren’t ‘in your face’ each month. When you budget, it’s important to include EVERY expense including your periodic expenses. These food bills add up fast, and can take a huge chunk out of your monthly budget. By creating meal plans at home and keeping your fridge and pantry stocked, you’ll be able to lower this variable expense considerably.

This is a refundable credit, so you can get back more than you pay in taxes. If you qualify, you can claim it even if you don’t normally file taxes or aren’t required to file. Some credits are refundable — they can give you money back even if you don’t owe any tax. Wages of employees depend on the demand for products and their manufacture.

Repair and maintenance expenses help to keep the assets of a business in good shape. An exception to this would be a retailer of stationery supplies or a printing press, in which case you will show these expenses as a part of the cost of sales. The office building has an estimated useful life of 20 years at the end of which it is likely to be sold for $80,000. A provision for doubtful debts is necessary to account for any non-payments that are not yet obvious but can be reasonably expected.

How to Automate Expense Reporting

Some companies also include the costs of goods sold (COGS) as an operating expense. For example, direct labor or rent for production facilities may be classified as different types of operating expenses. These are https://accounting-services.net/ costs that constantly and consistently occur, so a company cannot avoid them at all. These expenses rarely have anything to do with production and never really vary, which means they are relatively predictable.

Payment of dividends on ordinary share capital is not considered as an expense of the company but treated as a distribution to owners. Finance cost is the cost of borrowing money, which includes the interest charged on bank loans, overdraft fees, and dividends on redeemable shares. The cost of printing materials for marketing, such as brochures and pamphlets, is included in the marketing expenses, so do not need to be shown here.

Some examples of fixed costs include insurance, property taxes, and payroll. In this article, we highlight the two categories of expenses (fixed and variable) before diving into some of the main types of operating expenses that businesses encounter. An operating expense is any type of expense that a company incurs during its normal day-to-day operations. Whether it’s a large corporation or a small, family-run enterprise, managers often look for ways to reduce their operating expenses (OPEXs). That’s because higher costs eat away at a business’s profits or bottom line. The thing about periodic expenses, is they tend to be necessary, which makes them hard to cut from your budget.

Standard vs. itemized deductions

This includes the cost of electricity, natural gas, and the running cost of backup generators. When promotion and marketing expenses are significant, it is more appropriate to show them separately from selling and distribution expenses. The calculation of the cost of goods sold is pretty straight forward for retail businesses, as you can learn from the example below. Expenses are the cost of various resources that are consumed in running a business. Most people take the standard deduction, which lets you subtract a set amount from your income based on your filing status. Companies must bear these charges to keep running smoothly regardless of the products they manufacture or sell.

Capital Expenses

This is precisely what you are worried about, bringing you here to this article, hoping to get a complete understanding of expenses in accounting. While expenses in accounting sound like a very complex subject, it is a very important one at that. Accountingo.org aims to provide the best accounting and finance education for students, professionals, teachers, and business owners. This is because the business is not paying such taxes out of its own resources but from the income that is withheld from others. Insurance cost is not capitalized in the balance sheet because it is a recurring expense that is necessary to preserve rather than enhance an asset’s usefulness.

If you can cut back on eating out, you could potentially save a lot with your variable expenses. Think of all the occasions when you pay for someone else to make your food. This could be work lunches, school lunches, fast food, coffee shops, or restaurant dining. Reducing your fixed expenses often has the greatest (and best) impact on your budget and finances. Of the three categories of expense, these are often attached to a contract, agreement, or legal obligation. I like working with my net income as it makes my monthly budget simpler, with one less category to account for.

Selling and distribution expenses

With a little planning, you could reduce the amount of gas you put in your tank every month. Of course, you can stop going out to eat or avoid shopping for unnecessary items. But, you can also lower many of your necessary expenses as well, simply by adjusting your financial decisions.

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