fixed expenses

Examples of fixed expenses in the following topics:

• Fixed Costs

  • Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.
  • Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business.
  • In management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period.
  • For example, a company may have unexpected and unpredictable expenses unrelated to production.
  • Average fixed cost is a per-unit-of-output measure of fixed costs.

• Operating Expenses, Non-Operating Expenses, and Net Income

  • Operating expenses and non operating expenses are deducted from revenue to yield net income.
  • Paper, toner, power, and maintenance costs represent operating expenses.
  • In business, operating expenses are day-to-day expenses such as sales and administration.
  • Everything else is a fixed cost, including labor.
  • Operating expenses, non operating expenses and net income are three key areas of the income statement.

• Adjustments

  • Expiration of insuranceInsurance expense 200 Prepaid insurance 200b.
  • Expiration of insuranceInsurance expense 200 Prepaid insurance 200b.
  • The adjusting entry would credit the asset (e.g. supplies) account and debit a related expense account (e.g. supplies expense)
  • For example, the depreciation of fixed assets is an expense that has to be estimated.
  • The entry for bad debt expense can also be classified as an estimate.

• Other Expenses

  • Other expenses include SG&A, depreciation, amortization, R&D, finance costs, income tax expense, discontinued operations expenses.
  • Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, rent, and all expenses and taxes directly related to producing and selling product, etc. )
  • Several standard methods of computing depreciation expense may be used, including fixed percentage, straight line, and declining balance methods.
  • Other expenses or losses - expenses or losses not related to primary business operations, (e.g. foreign exchange loss).
  • Operational expenses and non-operational expenses are the main cash outflow of a business.

• Sample Income Statement

  • 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).

• Price Fixing

  • Price fixing is a collusion between competitors in order to raise prices of a good or service, at the expense of competitive pricing.
  • There are many things sellers may do during a price fix.
  • These are all instances of price fixing.
  • Because of this, price fixing is illegal in most developed countries.
  • In the US, price fixing can be prosecuted as a criminal federal offense.

• Return on Assets

  • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$
  • Return on Total Fixed Assets equals the business's net income divided by the average value of the business's total fixed assets for the accounting period.
  • You calculate the average value of the business's fixed assets by adding the value of the business's total fixed assets at the beginning of the accounting period to the value of the total fixed assets at the end of the period.

• Importance of Recognition and Measurement

  • Deferred expense (prepaid expense) allows matching costs of products paid out to those not received yet.
  • Depreciation matches the cost of purchasing fixed assets to revenues generated by them.
  • Deferred expenses, or prepaid expenses or prepayment, are an asset.
  • Prepaid expenses are not recognized as expenses, but as assets until one of the qualifying conditions is met resulting in a recognition as expenses.
  • Prepaid expenses, such as employee wages or subcontractor fees paid out or promised, are not recognized as expenses (cost of goods sold), but as assets (deferred expenses), until the actual products are sold.

• Preparation of the Balance Sheet

  • The prepaid expense will be carried as an asset until it is used.
  • Prepaid insurance premiums are another example of prepaid expenses.
  • Sometimes, prepaid expenses are also referred to as unexpired expenses.
  • Fixed assets are the assets that produce revenues.
  • "Other assets" is a category of fixed assets.

• Fixed Assets Turnover Ratio

  • Fixed-asset turnover is the ratio of sales to value of fixed assets, indicating how well the business uses fixed assets to generate sales.
  • Matching concept is simply matching the expenses of a period against the revenues of the same period.
  • Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet).
  • Fixed asset turnover = Net sales / Average net fixed assets
  • Fixed-asset turnover indicates how well the business is using its fixed assets to generate sales.