HY Accounting Blog

Business Expense: Your Ultimate Guide

Business expense accounting is one of the most important aspects of running a business. In fact, it can be called the foundation stone of any type of enterprise. Broadly speaking, business-expense accounting is simply the cost that your business incurs in order to make sales. By properly classifying these many different costs into different business expense categories, you will create effective budgets, file accurate tax returns, and keep track of expenses over time.

In short, business expense management is all about controlling your business’ bottom line!

Business Expense:

  • The business expense is the money that is spent on business operations.
  • The business expenses must be business-related expenditures or costs incurred by a business entity.
  • The business expenses are also what you need to spend in order to actually do business.

Advantages of Business Expense:

There are many advantages of business expenses with the most obvious one being that business owners and managers can deduct business expenses from their business income. Other benefits of business expense include:

  1. Keeps accurate records for business income and business expenses.
  2. Helps to keep the business’ financial report in order.
  3. Help establish a record of deductions that can be used when filing taxes.
  4. Promotes good money management.
  5. Provides transparency in business dealings.

Disadvantages of Business Expense:

  1. There are many disadvantages of business expense for business owners and employees:
  2. The business owner has to pay for the business expense, and they may struggle to afford it, impacting their cash-flow.
  3. Employees might not want or appreciate business expenses because they don’t get paid well.
  4. It is difficult to determine some business expenses in the business budget.
  5. The business owner might have trouble explaining business expenses to the tax authority if they don’t understand them well.

To avoid these disadvantages, you can hire a bookkeeper or an accountant for your business that will take care of business expense management and other financial matters. They are skilled at knowing what is considered as a legitimate business expense versus personal use, which may reduce your risk of having issues with tax authorities later on down the road when it comes time to file taxes each year. A good bookkeeper or accountant should be able to offer guidance about how much money would make sense for you to set aside every month based on your profit margin so that you’re not struggling to afford business expenses.

Different Kinds of Business Expense:

There are a variety of business expenses, that could potentially be deducted, which makes it extremely difficult to create a definitive list. Largely because of the industry and nature of your business. What is deductible to your business, may not be deductible to another business. At a high level, there needs to be a direct link between the income and the expense.

Some General Deductions include:

  • Advertising & Marketing
  • Accounting & Bookkeeping
  • Material Expenses
  • Subcontractors
  • Wages
  • Superannuation
  • Office Expenses
  • Printing & Stationery
  • Rent for the business permises
  • Business Insurances
  • Equipment & Machinery

How are business expenses treated in regard to tax legislation?

The business expenses are treated the same as business income for tax purposes. The business can deduct the business expense from business income which is attributable to its business. When calculating the business income, the business will have a higher figure because a proportion of business expenses will be deducted from it.