Accounting by Expense - FAQ
3 minute read
Here are some answers to commonly asked questions on our new Accounting by Expense pricing model.
- What is considered an “expense”
- What is considered a “transaction”
- What is the difference between “accounting by expense” and “accounting by transaction”
- Are loans (to subsidiaries, directors or shareholders) considered an expense?
- Are dividends counted as an expense?
- Are goods on consignment counted as an expense under our accounting plans?
- How are is accounting and depreciation of expensive assets treated?
- Why Sleek decided to move into “accounting by expense”
- Will this”expense” model be more expensive for me?
- I am an existing accounting client on “accounting by transactions”. Can I switch over to accounting by expenses?
- I would life to stay on “transactions” model. Can I do so?
- If my accounting expenses is s$30k per year, which plan should I be on?
- I host a marketplace and when customers pay their merchants, the payment is made to me. I will then send out a settlement at the end of each month to the merchants. Is this payout considered as expense?
- What if my financial year is greater than a 12 month period? Does this impact on your support and accounting plan pricing?
1(a) 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:
- Impairment charges
Fixed – expenses that does 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:
- 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
- Marketing and advertising (sometimes fixed and sometimes variable)
1(b) What is considered a “Transaction”
Transactions are a type of business event that is measurable which will affect the company’s financial position.
There are 2 main types of Transactions. “Internal” and “External”
Internal – Transactions happening within the company, such as:
- Purchase/Transfer of assets from one department to another.
External – Transactions happening between the company and another person/entity, such as:
- Payment made for purchase of products/services
- Payment made for company expenses (e.g. Rent, utilities, etc)
- Salary payments
- Payment received from vendors/suppliers
- Payment received from selling services/products to another person/company
- Bank Interest, fees and charges
2. What is the difference between “Accounting by Expense” and “Accounting by Transaction”
Currently, Sleek, like most accounting firms in Singapore charges clients for accounting services based on the number of transactions they have. The more transactions you have, the higher the cost will be for accounting services. This is because more time is spent by the bookkeepers to ensure all your transactions are in order.
Clients are charged for accounting services based on the amount of expenses they have instead, with a higher monthly expense attracting a higher cost for accounting services.
3) 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).
4) 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.
5) 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.
6) How are is 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.
7. Why have Sleek decided to move into “Accounting by Expense”
Since 2017, when Sleek started, we have been constantly using technology as an enabler, resulting in a better user experience and cost efficiency. This makes the lives of our entrepreneurs and investors easier.
We have led an extensive survey on many of our clients who have suggested that it is much easier for them to keep track and calculate their expenses on a monthly basis, rather than on a transaction basis.
For entrepreneurs starting their own business, they have also indicated that it is easier for them to estimate their monthly expenses rather than transactions.
For E-commerce business owners, it is also more practical and affordable to have accounting to be charged based on expense instead, as being on the transaction model might incur much higher cost if you have many sales orders in a day.
8. Will this “expense” model be more expensive for me?
In fact, we believe that this model would be more cost efficient for you, as a business owner. You would be able to manage your expenses better.
We offer more options and flexibility on this model, and should your expenses fall or increase, we will extend a credit or bill you for the pro-rated amount on a quarterly basis.
You can have a look at the options available under this new plan here.
9(a) I am an existing accounting client on “accounting by transactions”. Can I switch over to accounting by expenses?
We will be able to switch you to the new accounting expense model after the end of your current financial year. As you may already be mid-way through your current financial year, it would be best to stick with the current transaction accounting model for your company in order for us to report your accounts in a consistent and timely manner.
We will inform you a few months before the expiry of your current plan, on the renewal to this new expense model.
9(b). I would like to stay on the “transactions” model. Can I do so?
If you have any concerns or feedback, please reach out to our accounting team at [email protected]. Our accountants would be able to advise you accordingly.
10) If my accounting expenses is s$30k per year, which plan should I be on?
We are able to average the value of your expenses over the entire year period. Hence in this case, the suitable accounting plan will be up to s$2.5k expenses per month, and only cost s$900/financial year.
11) I host a marketplace and when customers pay their merchants, the payment is made to me. I will then send out a settlement at the end of each month to the merchants. Is this payout considered as expense?
Any payout to the merchant is not an expense because you are merely collect payments on the marketplace on their behalf. This money is thus never yours in the first place and is transferred to the merchants later.
12) What if my financial year is greater than a 12 month period? Does this impact on your support and accounting plan pricing?
Yes, adjustments to the pricing will be made as there will be additional support required for tax and accounting.For financial periods greater than 12 months, our team will have to prepare 2 tax computations and lodge this in 1 combined tax return.
For example, if you have a 17 months financial year running from 1 Aug 2019 to 31 Dec 2020, it will be split into:
YA 2020: 1 Aug 2019 – 31 Dec 2019
YA 2021: 1 Jan 2020 – 31 Dec 2020
To help prepare the secondary tax computation a one off top up fee of s$500 will apply.