While it’s certainly possible to track expenses using a business expenses list, or by entering expenses on a spreadsheet, come tax time, you’ll appreciate the ability to extract those expenses easily. Plus you have the security of having adequate backup and a solid audit trail in place, should you ever be audited. Educating yourself about the common small business expense categories will make it much easier to determine what is and isn’t deductible at tax time. To find your company’s operating expenses, review your general ledger, and look for expenses that don’t directly impact the cost of creating your product or service. Knowing your operating expenses (OPEX) allows you to calculate your company’s operating expense ratio (OER). The OER gives you a direct comparison of your expenses to your income so that you can compare your business to others in your industry.
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Examples of Indirect Expenses
Professional services expenses refer to the costs of hiring outside experts to provide specialized services to your business. Advertising and marketing expenses refer list of expenses in accounting to the costs of promoting your products or services to potential customers. The US has specific guidelines and limitations for deducting insurance expenses.
- Take a look at your company’s income statement, and you might see a section devoted to operating expenses.
- But because the company owes someone the money for its purchase, we say it has an obligation or liability to pay.
- According to the IRS, business expenses must be ordinary and necessary to be deductible.
- Common expenses include payments to suppliers, employee wages, factory leases, and equipment depreciation.
- Again, equity accounts increase through credits and decrease through debits.
- Direct and Indirect costs can be declared on the income statement as expenditures since a personal service company does not hold inventory.
In this article, we’ll explain what type of expenses are deductible as well as provide you with a list of the most commonly used business expense categories. Some business owners don’t have an income statement for their business, or their income statement doesn’t separate expenses into cost of goods sold, operating expenses, and non-operating expenses. In this case, you can still get a sense of how much it costs to run your business.