Direct and Indirect Expenses

Direct and Indirect Expenses: Learning Objectives: 1.

Define and explain direct and indirect expenses.

2.

What is the difference between direct and indirect expenses?

Expenses means the expired costs incurred for earning revenue of a certain accounting period. They are the cost of the goods and services used up in the process of obtaining revenue. In other words, it becomes possible to earn revenue with the help of expenses. or example, purchase of goods, wages, salaries, rent, carriage, customs duty etc. We have to incur all these expenses in order to earn revenue. Expenses are mainly divided into two categories! 1.

Direct expenses

2.

Indirect expenses

These two types of expenses are briefly discussed below!

Direct Expenses: Expenses connected with purchases of goods are "nown as direct expenses. expenses. or example, freight, insurance, of goods in transit, carriage, wages, custom duty, import duty, octroi duty etc. Without incurring these expenses, it is not possible to bring the goods from the purchase point to the godown of the business. such expenses are collectively "nown as direct expenses.

Indirect Expenses: #ll expenses other than direct expenses are assumed as indirect expenses. expenses. $uch expenses have no relationship with purchase of goods. Examples of indirect expenses include rent of building, salaries to employees, legal charges, insurance of building, depreciation, printing

What is the diference between "Direct Expenses" and "Indirect Expenses"?  There are 2 types of expenses that you can deduct related your home oce/business: Direct Expenses and Indirect Expenses. •

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Direct Expenses: Direct expenses are those expenses that are paid only for the business part of your home. For example, if you pay for paintin or repairs only in the area used for business, this !ould be a direct expense. Indirect Expenses: Indirect Expenses are those expenses that are paid for "eepin up and runnin your entire home. Examples of indirect expenses enerally include insurance, utilities, and eneral home repairs. #ince these are expenses you !ould pay for the entire home, these are considered indirect expenses. $ote: If you paid one of these separately and specically for the part of your home you are using for business, these could be considered "direct expenses". For example, if you paid separate utilities that were specically for your home oce, this could be considered a direct expense. If any part of that bill included utilities for the whole house, though, that would be an indirect expense.

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Difference Between Trading Account and Profit and Loss Account: Learning Objectives: 1.

Differentiate between trading account and profit and loss account.

ollowing are the main points of difference between trading account and profit and loss account!

Trading Account

% It is the first stage of final accounts.

&

It shows the gross result 'gross profit or gross loss( of the business.

#ll direct expenses 'expenses )

connected with purchase or production of goods( are considered in it.

*

It does not start with the balance of any account.

Profit and Loss Account

%

&

It is the second stage of the final accounts.

It shows the net results 'net profit or net loss( of the business.

#ll expenses connected with sales and ) administration 'indirect expenses( of business are considered.

It always starts with the balance of a * trading account 'gross profit or gross loss(.

Its balance '.- or .( is + transferred to profit and loss account.

+

Its balance '/.- or /.( is transferred to capital account in balance sheet.