![]() So the revenue obtained in May is not actual.Īccrual-based accounting :Under an accrual-based accounting method, the expenses are recorded in the same month when they are incurred irrespective of when they are actually paid. For example, if a sales commission due in the month of May is paid in July, then it will be recorded in July instead of May. Therefore, with this method, the actual revenue is not obtained. ![]() In this method of accounting, the focus is on the cash flow. Generally, there are two types of accounting methods that are followed to record the expenses.Įxpenses are brought down in the profit-and-loss account by either of the two accounting methods chosen by the business.Ĭash-based accounting :In cash-based accounting, the expenses are not mentioned or recorded when they are incurred but are recorded when they are actually paid. For example packaging expenses, wages, transportation expenses, advertising and selling expenses, etc.īusiness entities record their expenses and revenues in the income statements. Variable expenses are those expenses which keep changing and depend on other variants. For example rent, electricity expense, depreciation, salary, etc. For example interest, taxes, fuel cost, etc.Įxpenses which are fixed and are not dependent on any other variant like production or sales are fixed expenses. Whereas expenses which do not become the direct part of the operation and are not the part of the business's core functions are termed as non-operating expenses. For example salaries and wages, depreciation, rent and leases, selling expenses, etc. Those expenses which are the main part of operations and are related to the company's core operations are termed operating expenses. Rent, Wages, Asset’s depreciation Selling expenses, etc.Įxpenses are generally categorized in two ways Some common expenses incurred in all businesses are: In terms of the accounting equation, expenses productively decrease the business owner's equity. Expenses can also be written as the sum of all the operations that usually bring profit. It means the outflow of cash in return for goods or services. In accounting terms, expense is the operational cost that is paid to earn business revenues.
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