What are Direct and Indirect Expenses

Transcript

What are Expenses Expenses Cost of purchasing a Goods or Service It is the cost incurred for earning revenue(income) Example 1 Supose I open a cloth factory I make following Transactions Sales of goods 200000 Purchase of Goods 100000 Factory Electricity bill 20000 Paid Telephone Bill 2000 What are expenses? Purchase 100000 Electricity Bill 20000 Telephone Expense 2000 Total Expense 122000 Type of Expenses Type of Expense Direct Expense Indirect Expense Expenses which are Expenses which are directly related to Not directly related to Run the Business Run the Business Example:- Example:- Purchase of Goods Telephone Expense Factory Electricity bill In case of factory What is Direct and Indirect Expense Example 1 Supose I open a cloth factory I make following Transactions Sales of goods 200000 Purchase of Goods 100000 Factory Electricity bill 20000 Paid Telephone Bill 2000 Direct Expense Purchase 100000 Electricity Bill 20000 120000 Indirect Epense Telephone expense 2000 Example 2 Supose I open a cloth factory I make following Transactions Sales of goods 200000 Purchase of Goods 100000 Freight Expense 20000 Loading Unloading Charges to Labour 1000 Office Electricity Bill 10000 (My office in factory) Internet Bill of office 2000 Paid Salary to office staff 10000 Pay Interest to Bank on Loan 7000 Total Expenses 150000 What are Direct expenses Purchase 100000 Freight Expense 20000 Loading and Unloading Expense 1000 Total 121000 What are Indirect Expenses Electricity Expense 10000 Internet Expense 2000 Salary Expense 10000 Interest on Loan 7000 Total 29000 Example 2 What is Total income and Expense and profit Total Income Sales of goods 200000 Total Expense Direct Expense 121000 Indirect Expense 29000 150000 Summary What are Direct Expenses? It refers to those expenses which are directly related to core business model Without these expenses,business cannot be run Example:- Freight is a Direct Expense Without Freight,we cannot bring goods to shop What are Indirect Expenses? It refers to those expenses which are not directly related to core business model Without these expenses also,business can be run Example:- Telephone Bill is an Indirect Expense Without Telephone also,we can run our business