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Another part of the expenditure associated with an enterprise is Expenses. This is a general classification used by the accounting profession and in the way it is used can lead to a great deal of misunderstanding about how the performance of an enterprise should be assessed
Even the HMRC treats the term incorrectly for SMEs since it allows for all expenditure used to run a business to be called Expense. Most people treat expenses as those out of pocket transactions used by an employee to carry out their employers business
Expenses incurred by an enterprise are in fact those outgoings provided to run the operation and will need to be generated by the gross profit made from selling goods or services. Unless the gross profit is enough to support the expenses there will be a nett loss and the enterprise will quickly run out of money and become insolvent
Items such as rent, energy, telecommunications, bank charges, legal charges, provision of marketing and sales facilities, payroll taxes, travel and subsistance and vehicle charges are all included under the heading of Expenses
Generally in SMEs, the charges for rent, telecommunications, travel and subsistance and vehicles are counted as Expenses since it would not be either practical nor worth while to apportion those charges to Costs and count them as Indirect Costs towards Costs of Goods Sold however, if the major part of the enterprise expenditure is for the actual manufacture and distribution of goods it may be worth while doing the excercise since the gross profit will be more accurate
Rent can be apportioned on the basis of the area of the premises used, telecommunications by the number of pieces of communications equipment used in each area and travel would be counted against the appropriate department such as manufacturing, quality, sales, accounts and administration
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Last Update 28-Feb-2010
Date first published 07-Nov-2005
