An expense is an outlay of money that is invested or occupied in a certain matter, particularly in the consumption of goods or services. Some common types of expenses recognized in the financial statements are Salaries and wages, Utility expenses, Cost of goods sold, Administration expenses, Finance costs, Depreciation, Impairment losses.
The budget has to be established in a certain period of time, usually, we can say a month or half of it and from it, the expenses are determined according to their importance. In the budget, aspects such as a pension fund, savings, debts, payments, among others, can be taken into account. This depends on the rhythm of the life of each person.
Difference between expense and cost: It is important to differentiate expenses from cost since although both represent an outflow of money, the first does not necessarily imply an investment and the second does mean a return of money.
Classification of types of expenses
Fixed expenses: they are the type of expenses that we must carry out yes or yes from time to time and, generally, they are monthly and do not vary in terms of amount. A clear example of these is the services of various companies, such as the bank, the electric company or the telephone service.
Variable expenses: they are those that do not have a fixed amount, that generally depends on consumption to collect, that is, the more it is used, the more money it costs. For example, the amount they charge us for using the credit card.
Unexpected expenses: also called emergency expenses are those that we had not previously included in our budget, unforeseen, as it may be that we suddenly have to visit the doctor and buy medicines.
Ant expenses: this is the name given to those expenses that arise little by little, which do not have a great cost, but which add up to a lot and by not taking them into account because they are minimal, at the end of the month they make us wonder where we have gone. budget.
Flexible expenses: this is the name of the type of expenses that we cannot avoid facing, although we can decide how much to spend on them. For example, buying a pair of shoes when they are already worn.
Discretionary expenses: it is the money that you choose to spend and you allocate for recreation, such as going out to dinner or to the movies.
Depending on the spending context, we can divide the expenses into personal and business :
- Personal expenses: they are made by a person or family. Among these, we have other types: the fixed and variable ones, which we have already talked about, and the essential ones (we cannot run away from them, such as the payment of services) and optional ones (we decide to face them or not, since it is not something of vitally important, like vacations).
- Business expenses: for an organization, expenses are money that is lost in a way, although we all know that it is balanced according to the entry of existing money. Within this type we have:
- Capital expenses: they are needed to produce goods or services.
- Administrative expenses: they are associated with the financing of the organization, such as salaries.
- Financial expenses: are the debts that an organization faces.
- Transfer expenses: represents money that is used for benefits or social credit.
- Extraordinary expenses: they appear as an emergency expense.
- Representation expenses: it is money invested in the public image.
- First establishment expenses: investments made to start new projects that will generate money inflows later).
- Commercial expenses: are those that the sale entails, such as advertising.
- Social security expenses: funds earmarked for the organization’s social security.
- Tax expenses: they are deductions that the State grants to companies.
- Deficit spending: implies a deficit related to income.
- Personnel expenses: deals with the organization’s human resources expenses.
- Exit costs: charges for sales made in the company.
- Variable and fixed expenses: already described above.
- General expenses: they have to do with the well-being of the organization. For example, building maintenance.