Examples of fixed expenses in the following topics:
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- Prior to the beginning of the year, managers prepare a plan for what they hope to accomplish in the coming year in terms of revenue, expenses, and net profit.
- "A budget is a financial document used to project future income and expenses.
- The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.
- Then, as the year unfolds, actual income and expenses are posted to the accounting records, and compared to what was budgeted, and a variance from budget for each item budgeted (e.g. sales, selling expenses, advertising costs, etc) is calculated.
- Managers responsible for the various income and expense items then examine each variance and, if it is substantial, search for an explanation.
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- Prior to the beginning of the year, managers prepare a plan for what they hope to accomplish in the coming year in terms of revenue, expenses, and net profit.
- Budget can be more formally defined as "a financial document used to project future income and expenses. " The budgeting process may be carried out by individuals or by companies to estimate whether the person or company can continue to operate with its projected income and expenses.
- Listing all required, fixed expenses, like rent and mortgage, utilities, and phone
- Then, as the year unfolds, actual income and expenses are posted to the accounting records, and compared to what was budgeted, and a variance from budget for each item budgeted (e.g., sales, selling expenses, advertising costs) is calculated.
- Managers responsible for the various income and expense items then examine each variance and, if it is substantial, search for an explanation.
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- It then calculates operating expenses which, when deducted from the gross profit, yield 'income from operations. ' The difference of other revenues and expenses is then applied to the income from operations.
- Selling Expenses: Represents expenses needed to sell products (salaries of salespeople, commissions and travel expenses, advertising, freight, shipping, depreciation of sales, store buildings and equipment, et cetera).
- Depreciation / Amortization: The charge with respect to fixed or intangible assets that have been capitalized on the balance sheet for a specific accounting period.
- It also includes gains that are either unusual or infrequent, but not both (gain from sale of securities or gain from fixed asset disposal).
- Other expenses or losses: Expenses or losses not related to primary business operations (foreign exchange loss).
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- In reporting expenses on an income statement, there are various expenses incurred that are not directly related to production.
- The primary reason tracking these expenses separately is so important is because they are independent of variable production volume, and as a result, their overall impact on the organization is largely fixed (as opposed to variable, per unit cost).
- Most of these expenses tend to revolve around indirect aspects of production.
- By separating these expenses from the production expenses, it provides investors, management, and other stakeholders with insights surrounding the efficiency of organizational operation.
- This demonstrates where it is (under operating expenses).
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- The income statements reports the revenues, expenses, and overall net profit or loss over a given reporting period.
- Expenses are the overall costs of acquiring the above revenues.
- Depreciation/Amortization - Over time, fixed assets will decrease in value.
- This depreciation of assets is allocated as an expense over the lifetime of the assets being recorded.
- The income statement starts with revenues, minuses costs and expenses, and results in a net gain or loss.
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- The break-even point (BEP) is the point where expenses and revenue intersect.
- By performing any of these actions, the break-even point would be reduced, meaning that the owners do not need to sell as many tables in order to pay off fixed costs.
- In the linear model, the break-even point is equal to the fixed costs divided by the contribution margin per unit .
- Try reducing their fixed costs (e.g., by renegotiating rent, or by better controlling utility telephone bills or other costs)
- Any of these would reduce the break-even point, meaning the business would not need to sell so many tables to ensure it could pay its fixed costs.
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- CAPEX include expenses for tangible goods, such as the purchase of plants and machinery, as well as expenses for intangibles assets, such as trademarks and software development.
- A CAPEX cannot be deducted as an expense in the year in which it is paid or incurred and must be capitalized.
- An ongoing question for the accounting of any company is whether certain expenses should be capitalized.
- Costs that are expensed in a particular month simply appear on the financial statement as a cost incurred that month.
- Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.
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- Asset accounts: represent the different types of economic resources owned by a business, common examples of asset accounts are cash, cash in bank, equipment, building, inventory, prepaid rent, goodwill, accounts receivable.Assets are usually broken down into three categories: Current assets, fixed assets, and intangible assets.
- Current assets are assets which could be converted to cash fairly quickly if necessary, certainly in less than a year.Examples of current assets include cash, cash in bank, inventory, prepaid rent, and accounts receivable.Fixed assets are assets of a more permanent nature like manufacturing equipment, buildings owned, and the like.Intangible assets, like goodwill, are monetary values assigned to intangibles like a brand name.It is typically used when accountants need to justify the purchase price of one company by another when the price cannot be justified by the monetary value of the purchased company's assets minus liabilities.Intangible assets are beyond the scope of this chapter as they apply more to larger corporations than to a start-up business.
- Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.Current liabilities are liabilities which are scheduled to be paid within a short period of time, usually less than a year.Examples of current liabilities include accounts payable to creditors, like suppliers, current amounts payable to employees (payroll) and interest due on short term loans.Long-term liabilities (sometimes called fixed liabilities) are liabilities of a more permanent nature like loans that are not due in the current year (long-term debt), and the like.
- Revenue accounts or income: represent the company's gross income before expenses are deducted.Common examples include sales, service revenue, commissions, and interest income.
- Expense accounts: represent the company's expenditures to enable itself to operate.Common examples are employee costs (payroll and fringe benefits), supplies, software, telephone bills, electricity and water, rentals, depreciation, bad debt, interest, and insurance.
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- However, the process of obtaining this additional information is expensive.
- This appears in two forms: the first, full cost pricing, takes into consideration both variable and fixed costs and adds a % markup.
- However, the process of obtaining this additional information is expensive.
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- For example, a sizeable number of agricultural producers have discovered that by working together they can purchase and share expensive planting and harvesting equipment, decide which crops should be farmed, work to reduce water usage, and even set a fixed price for wholesalers.