Expense account

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An expense account is the right to reimburse an employee's money for work-related purposes. Some general expense accounts are: administrative costs, amortization fees, bad debt costs, cost of goods sold, depreciation expenses, outgoing fees, income tax expenses, insurance fees, interest expenses, disposal of plant assets, maintenance and repair costs, salaries and wages, sales costs, inventory costs and utility costs.

Video Expense account

Saldo Normal

To add an expense account, it should be debited. To reduce the expense account, it should be credited. The normal expense account balance is debit. To understand why costs are debited, it is relevant to note the accounting equation, Asset = Equity Liabilities. Expenditure appears below the equity portion of the equation because equity is ordinary shares plus retained earnings and retained earnings are income minus expenses minus dividends. Fees are considered temporary accounts in this equation, because at the end of the period, the expense account is closed. Since the expense account lowers the credit balance of the owner's equity, the expenses must be debited.

Maps Expense account

Closing Spending Account

At the end of the year, the expense account must be closed, or deleted. The expense account must be closed as it is temporary, meaning that the account is only related to a particular accounting period and will not carry over to the next period. When an expense account is closed, they close to another temporary account, known as the Income Summary. So, the cost account should be credited, and the Income Summary will be debited. The net loss or gain in this account is transferred to the Earnings Balance, which is a permanent account.

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Contra Expense Account

Contra Account is a related account, but is separate from the particular account. The counter-cost account will behave in contrast to the normal charge account; instead of debiting increases, counter accounts should increase credit. Instead of reduced credit, it will be credited for increasing. An example of a cost counter account is a Return and a Purchase Allowance.

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US tax treatment for cost account

In the United States, the use of expense accounts can be traced back to George Washington, who chose to cancel salaries and rely on expense accounts to cover his purchases during his military leadership in the American Revolution.

Under the current tax laws in the United States, the cost account is treated as either "responsible" or "unaccountable". Accounts that can be accounted for are subject to various restrictions. Accounts that can be accounted for are subject to various Internal Revenue Service regulations. There should be a documented business purpose for the account. Expenditure from an account should be documented, usually by using a receipt. Money entrusted to employees of accounts not spent for business purposes and recorded must be returned to the employer.

Money paid to an employee under a responsible expense account shall not be treated as employee's taxable income. Money paid to an employee under an irresponsible plan is treated as an income for the employee. Business expenses paid out of irresponsible plans can be deducted from employees' taxable income only as itemized deductions, and even then, they can only be deducted if the cost is equal to or greater than 2% of employee income.

Custom rules govern certain types of business expenses, including travel, entertainment, food, and reward rules.

Expenditure accounts are also privately arranged by internal auditors for many companies, often to ensure that funds are handled appropriately.

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See also

• Shipping fee

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References

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External links

• The Account-Expense Science, The New York Times, June 6, 2008
• Most Common Account Expense, BusinessWeek

Source of the article : Wikipedia