Accounts Expenses are an important part of accounting and can be defined as the costs that are not related to production. These expenses include items such as rent, utilities, insurance premiums, payroll taxes, or contributions to pension plans. Accounts expenses are also one of three classifications of assets on a company’s balance sheet; the other two are inventory and fixed assets.
In this article, we will discuss accounts expenses, accounting treatment, and examples of some items. So if you want to learn more about account expenses, you are in the right place.
What are accounts expenses
Accounts expenses are transactions that can be directly linked to the revenue-generating process. The costs of selling, general and administrative expenses (SG&A) are examples of accounts expense items.
They include all the other costs not included in the cost of goods sold (COGS). It is important to note that these types of purchases do not go towards the cost of a specific product, but rather towards overhead costs.
What is the accounting treatment for accounts expense
Accounting treatment of expenses depends on whether an expense is operating or non-operating. Operating expenses are those which are regularly required to carry on business operations and products sales. Non-operating items include items such as interest and dividends. An example of operating expenses would be a salary expense.
Categories of Expenses
- Operating Expenses: These are the day-to-day activities that companies need to run their business operations. They are operations that do not earn any revenue for the company and includes the following
- Salaries and Wages
- Advertising Expenses
- Utilities (gas, electric)
- Nonoperating expenses: These are expenses that do not have a day to day effect o the business, however, they are part of the income statement and balance sheet
- Salaries and Wages
- Rent Expense
- Insurance Premiums
- Financial expenses: Financial expenses are the costs incurred by borrowing from lenders or creditors. Examples include
- Loan origination fees
- Interest on borrowed money
- Extraordinary Expenses: They are one-time expenses that are not part of the usual daily business operations. Examples include
- Settlement of legal disputes
- Losses due to natural disasters
Examples of the accounting treatment for accounts expense
The following are some items that can appear as accounts expenses, along with their accounting treatment
- Salaries Expense is an operating expense because the business needs to pay salaries for its employees.
- Advertising Expense is an operating expense as well since the business has used money that could be generating revenues to promote itself and its products.
- Utilities (gas, electric) are nonoperating items and thus appear on the income statement as a cost of goods sold.
- Loans from lenders are a financial expense and thus a nonoperating item in the income statement.
- Losses due to natural disasters are extraordinary expenses and they do not appear in the income statement nor balance sheet, however, it will require some sort of impact on stockholders’ equity.
Accounts expenses are the costs that do not go towards the cost of generating revenues. They simply represent expenses incurred by a business in its effort to produce more products or services. We hope this article was helpful. Thanks for reading.