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?
- 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?
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. 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.
5. 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.
6(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.