- Nov 03, 2021
- 3 min read
What is considered an “expense”
There are several types of expenses in a business. The most common way to categorize them is into operating vs. non-operating and fixed vs. variable.
Operating – expenses a business incurs through its normal business operations such as:
- Cost of Goods Sold (COGS) – for example: cost of labour, cost of materials, etc.
- Marketing, advertising, and promotion
- Salaries, benefits, and wages
- Selling, general, and administrative (SG&A) – for example: cost to sell, cost to deliver, cost to manage the company
- Rent and insurance
- Depreciation and amortization
Non-operating- expenses that are not related to normal business operations, such as:
- Interest
- Taxes
- Impairment charges
Fixed – expenses that do not change and remain the same every month, even though there may be an increase or decrease in business activity in sales or production, such as:
- Rent
- Salaries, benefits, and wages (sometimes fixed and sometimes variable)
Variable – expenses that keep changing every month depending on the business activity in sales or production, such as:
- Transaction fees
- Commissions
- Marketing and advertising (sometimes fixed and sometimes variable)
Are loans (to subsidiaries, directors, or shareholders) considered an expense?
A loan to a subsidiary is classified as an asset (it will be a current asset if the loan is due within 12 months, non-current if it is more than 12 months).
Are dividends counted as an expense?
No, dividends distributed to shareholders are not recorded as an expense on a company’s income statement as they do not affect a company’s net income or profit. Instead, dividends impact the shareholders’ equity section of the balance sheet.
Are goods on consignment counted as an expense under our accounting plans?
Goods on consignment will not be considered as expense when the company is only taking commission from whatever has been consigned to them and any goods remaining unsold will be returned to the consignor.
How are accounting and depreciation of expensive assets treated?
It will be depreciated over time and will be considered as an expense.
Example: If depreciation is s$12,000 per year, the expense will be s$1000 per monthAs a benchmark typically for furnitures and small machinery, this period will be over 3-5 years. However for machines that can be used for a longer period but just subject to some repairs/overhaul, the period of depreciation can be longer.
What now?
It’s simple! If you have any questions about getting your business started, get them all answered by having a free consultation call with our experts.
