Wednesday, April 10, 2024

What are the major business expense categories?

In accounting, 'the books' refers to all the financial records of a business, including the balance sheet, income statement, and cash flow statement. As a business owner, reviewing these records should give you a clear understanding of your business’s financial health. Expenses are critical components of running a successful business, which makes proper categorization essential. Below are some of the major categories of business expenses.

1. Operating Expenses

The costs associated with the day-to-day operations of a business.

+ Rent and Utilities (office, electricity, water, and internet services)

+ Salaries and Wages (salaries, bonuses, and benefits)

+ Supplies and Equipment.

+ Insurance (liability, property, and health insurance)

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2. Cost of Goods Sold (COGS)

COGS refers to the direct costs attributable to the production of the goods sold by a company. This category is particularly relevant for manufacturing and retail businesses.

+ Raw Materials (materials and supplies directly used to create a product).

+ Direct Labor: (Wages for employees who are directly involved in the manufacturing process).

+ Manufacturing Overheads (Costs indirectly related to production, such as maintenance of equipment and factory rent).

3. Travel, Meals and Entertainment

+ Travel (Airfare, hotels, and transportation for business trips).

+ Meals and Entertainment (For hosting clients or for employee outings).

4. Technology and Software

+ Software Subscriptions (accounting software, customer relationship management (CRM) systems, and project management tools.)

+ Hardware (Computers, servers etc)

5. Marketing and Advertising

This category encompasses costs related to promoting the business and its products or services.

+ Advertising: Costs of traditional advertising (TV, radio, print) and digital marketing (social media, PPC, email marketing).

+ Promotional Materials: Costs for creating and distributing marketing materials, such as flyers, brochures, and swag.

+ Market Research: Expenses for conducting market research and surveys to understand customer preferences and market trends.

6. Professional Services

+ Legal Fees (legal advice, litigation, trademarks, and patents).

+ Consulting Fees.

+ Accounting Services (bookkeeping, tax preparation, and financial advice).

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