Basically, cost and expense are two terms that are contained in the science of accounting and are often referred to as expenses and costs. However, not all business people understand these two terms. In addition, the terms cost and expense are components contained in a financial report, so this is very important for you when making financial reports.
When running a business, you also have to be able to understand the basic accounting equation, in which costs and expenses are interrelated.
As an accountant, understanding these interrelated terms is very important, because one of the accountant’s jobs is to make financial reports related to expenditure and income transactions in which there are elements of costs and expenses.
As a businessman and also an accountant, understanding this is of course very important for the progress of your business so that it is not misplaced or can even become a loss.
After each business expense is recorded, the company needs to make it into a report that functions to determine what kind of operational expenses they have. In this article, we’ll take more about business expenses and also expense reporting in general.
Expenses are a decrease in economic benefits within one accounting period in the form of expenses or a reduction in an asset or a condition of a liability that reduces the value of equity that is not related to distributions to investors.
So in conclusion, expenses are a sacrifice of effort that must be spent and are also needed as a result which will later be linked to income. These expenditures and sacrifices can also be known as a source of currency that describes the amount of income in the accounting period.
This expense grouping is used as an income in the company’s acquisition results, such as in the profit and loss account which consists of employee salary expenses, electricity, rental costs and depreciation. Expenses also have the potential to reduce company revenues which will have an impact on determining the profits and losses of a company.
In addition, in releasing the company’s economic benefits, expenses can also take the form of cash disbursements. Expense in accounting is later used to determine profit. How to calculate expense is income minus expenses. Cost or cost in accounting is divided into two, namely fixed costs and variable costs.
Calculating costs and expenses is one of the main focuses in the company’s business. When the business activities that you have been running for a long time but do not calculate costs and expenses in a professional manner, then the business that has been running has the potential to result in failure or even bankruptcy.
After all the documents about expenses are gathered, that’s when the staff will do the next step, creating the expense reports. These reports are definitely needed by any company. Tracking the business expenses basically means that you will have a better understanding of how much money you spent previously. And since we’re talking about a company here, money is definitely an important aspect and should always be treated well.
The reports are not only useful for the inside parties, like the boss and managers, but also the outside parties, like investors, who want to know about the company’s expenses. Usually, they will see the report in the form of an income statement, which is usually presented regularly.
As explained above, detailed reports about expenses can benefit the company to manage its expenses. Tracking expenses is definitely a must-do in every company. Knowing what you spent is a wise step to further organize the money better. Some costs unrelated to production can be cut off to save more for investment.
The reports are also useful for the workers themselves. When they spent some money for production purposes, they could reimburse the amount by checking the expense report.
Usually, businesses will make the process automatic by connecting their reporting to an automatic app that may work for them. They also do the same thing with other business elements, like online payments, for example. The companies will use a program to accept online payments, which makes it easier for the customers to pay for something. That’s why they can also gain stable fees for collecting online payments, which is nice. Business automation is really great and helpful, so no wonder that many companies started to implement it.
There are a few ways to take advantage of the expense reports, such as:
- Track departmental and company expenses and overall cash flow
- Calculating profit by subtracting costs from gross income
- Replacing employees for qualified business expenses
- Track expenses related to a specific product line or project or client
When creating the expense report, the very first thing that should be done is to check and identify each expense in great detail. You can divide them into some main categories, or maybe per client project.
The process of making the reports is actually not that hard, such:
- The very first step is just identifying what kind of expenses the businesses have spent before
- List every expense to be included
- Knowing the correct amount of expenses by looking at the receipts and other documents related to them.
- Adding some notes if necessary
- Adding some other details like dates, numbers, etc.