Standard Operating Expenses – A Look at Expense Categories
One of the oldest business clichés is this: You have to spend money to make money. Expenses are the standard costs of doing business, and there’s really no way around them. On the plus side, expenses are tax deductions, and that means a lower tax bill for your company at year-end.
Expense accounts all have normal debit balances, which is the exact opposite of revenue accounts. In fact, there are very few times when you will ever see a credit entry in an expense account. Those rare occasions would be to correct mistakes, to reverse an accrual from an earlier period, or to close out the account. Any other credit postings are probably mistakes, which you need to correct with adjusting entries.
Like most everything else in accounting, there are so many different expenses that it’s easier to group them than just look at one very long list.
The most common division is between selling expenses and overhead, which is typically called “general and administrative” expenses on financial statements.
ALERT!
Don’t confuse standard business expenses with product costs, even when the word “cost” is used. Unlike product costs, which are directly tied to products, expenses exist even when not a single product is bought or sold. Also, even though both types are incurred with the hope of producing revenue, expenses can exist all on their own.