Guide to Business Expense Categories and Line Items
Max Ayuba
Dec 19, 2023
8 min read
Guide to Business Expense Categories and Line Items
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In an increasingly challenging environment for businesses, the ability to categorize business expenses is not only important for proper tracking of business expenses which helps to analyze the impact of each expense on operations and profitability, it is also important for tax purposes.
Business expenses are the costs incurred in the day to day running of the business. As a result, a number of expenses are deductible for tax purposes to help reduce the tax liability on businesses. That makes taking the time to organize business spending is important to allow for all legitimate write-offs and ensure proper amounts of taxes are being paid.
Below is a general list of categories and line items:
1. Advert/Marketing: These are expenses related to advertising and marketing activities that directly promote or market your business. Examples of expenses that fall under advert and marketing include print media, digital ads, billboards, posters, broadcast ads, brochures, flyers, business cards, t-shirts, caps, hosting and sponsoring events, trade shows, conferences, product launch, product samples and freebies, website development, content, email and influencer marketing expenses.
2. Communication: Expenses related to various communication activities within the organization via calls, email or internet can be classified under communication. Costs of communicating with customers can also be classified as communication costs. Examples include airtime, email expenses, collaboration software like slack, trello, airtable, customer support and call centers, customer bulk sms, internet expenses related to business operations.
3. Association Fee: This refers to fees paid to be part of an association or organization like market women associations, professional organizations, cooperatives which are usually recurring expenses.
4. Utilities: Utilities are used for expenses such as cost electricity, water, waste disposal, heating used in the business operations.
5. Haulage: Haulage expenses are used to classify costs related to transporting goods or materials within a localized region, usually via road, trucks or other vehicles. This encompasses various costs such as fuel, driver salaries, vehicle maintenance, tolls, insurance, and any other charges incurred during the transportation process. Haulage is commonly used for the delivery of goods from warehouses to retail stores.
6. Shipping/Postage Expense: Shipping and postage expenses, on the other hand, pertain to the costs of sending items from one location to another, which can involve both domestic and international shipping. This category includes various methods of transportation, such as air freight, sea freight, rail freight, and postal services. Shipping expenses encompass the charges associated with packaging, handling, freight services, and other fees required to transport goods from the sender to the recipient. Postage expenses specifically relate to the cost of sending letters, documents, or small packages through postal or courier services.
7. Office Supplies: This includes expenses related to purchasing various consumable items and materials necessary for the day-to-day operations in an office. These supplies are used to support administrative, clerical, and operational functions within the organization like stationery, beverage and snacks, cleaning materials,
8. Travel Expense: This includes expenses incurred by individuals or employees when they travel for business purposes on behalf of a company. These expenses cover various costs associated with travel, accommodation, meals, transportation, and other necessary expenditures while away from the usual work location.
9. Cleaning Expense: This refers to costs of purchasing cleaning supplies, paying for cleaning or janitorial services and waste disposal.
10. Insurance: Costs associated with purchasing insurance to protect your business from various risks and liabilities from losses due to theft, fire, or other property damage.
11. Professional Services: This expense category relates to costs of hiring experts to provide specialized services to your business such as legal, accounting, consulting, and IT services.
12. Transportation: Expenses related to movement of people or goods from one place to another in relation to the business operations are classified under this category.
13. Meals and Entertainment: This relates to expenses incurred on meals, refreshment and entertainment to clients, employees or customers as part of business related activities.
14. Medical Expense: Medical expense relates to any costs incurred in providing medical and healthcare services to employees.
15. License & Permits: Expenses incurred in obtaining and maintaining various licenses, permits, and certificates required for legal and regulatory compliance to operate a business or conduct certain activities. Examples include trade permits, business premises, vehicle and driving licenses, local government permits, etc.
16. Training and Education: This expense category is used to classify expenses related to training for employee development through training programs, e-learning platforms like Coursera, Udemy, conferences, seminars and workshops that relate to increasing the skills, knowledge and competencies of employees.
17. Software subscription: Costs related to subscribing to software services which are most often on a recurring basis like cloud based applications, accounting software, ERPs, data storage and backup and others.
18. Dues and Subscription: Costs associated with membership dues, subscriptions, and fees paid to join organizations, receive publications, access services, or participate in activities, gain specific benefits, privileges, or access to resources offered by the organizations or services being subscribed to.
19. Staff Salary: This relates to compensation and wages paid to employees of the business for their work and services. It includes base pay, wages, and any other forms of compensation provided to employees for their employment.
20. Employee Benefits & Compensation: This category covers a range of benefits and incentives designed to attract, motivate, and retain talented employees while enhancing their overall well-being like bonuses, commissions, incentives and other benefits.
21. Donations: Costs incurred by the business for charitable contributions made voluntarily and without the expectation of receiving direct benefits in return.
22. Rent/Lease: This categorizes costs incurred by a business for renting or leasing property, equipment, or assets used in the day to day operations of the business
23. Tax Expense: This group consists of business tax expenses incurred during the course of their operations payable to the tax authorities. This includes income tax, payroll tax, corporate tax, VAT.
24. Transaction Charges This relates charges on transactions such as processing payments, wire transfers, bank charges.
25. Gifts: This category covers gifts to employees, clients or customers.
26. Employee Loan: This refers to salary advance to employees or loans to employees to be repaid at a future date, usually short term in nature.
27. Loans: Costs of issuing out a loan to a customer.
28. Loan Repayment: This is not an expense but an outflow as repayments for loans collected.
29. Commissions: This refers to costs incurred by a business for paying commissions to employees, sales agents, or other parties for generating sales or achieving specific performance goals.
30. Repairs and Maintenance: This category of expense represents the costs incurred by a business for repairing, servicing, and maintaining its assets, properties, equipment and other faulty items in the course of operating.
31. Vehicle Repair and Maintenance: This relates specifically to costs incurred on repairing and maintaining vehicles.
32. Interest Expense: Interest expense relates to the total amount a business accrues in interest on its loans.
33. Fueling: Costs related to fuelling for the day to day running of the business operations.
34. Office Equipment: This relates to the cost of purchasing equipment used in the office for business operations like file cabinets, water dispensers, printers and scanners, projectors and others.
35. Computer: This refers to the cost of purchasing computer equipment like laptop, desktop, hardware, software costs, mobile phones.
36. Computer Accessories and Consumables: Cost of purchasing items used along with the computer are not categorized as assets but are important for its optimum functionality like external harddrives, mouse, cables, chargers, extensions, and others.
37. Furniture and Fittings: This refers to the cost of purchasing desks, tables, chairs, work stations, window blinds, carpets and others.
38. Vehicle: Costs of purchasing cars, trucks, buses for business operations.
39. Research and Development: This category of expense represents the costs incurred by a business in relation to activities geared towards creating or improving products, processes, technologies, or services.
40. Amortization: Amortization is the process of allocating the cost of intangible assets over their estimated useful life. Intangible assets are non-physical assets that have value but lack a physical substance such as patents, copyrights, trademarks, goodwill, software licenses and intellectual property.
41. Depreciation: Depreciation on the other hand is the allocation of the cost of tangible assets over their estimated useful life. Tangible assets are physical assets with a definite lifespan such as buildings, machinery, vehicles, equipment, furniture, and fixtures.
Each business and each industry have categories that are unique to them and it is very essential to understand each category and ensure that expenses are posted correctly. This will help the business in understanding their major cost drivers and guide in management decision making. Tagging expenses accurately will also help in reducing tax liability due to expenses that are tax deductible.
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