Business Expenses

Business Expenses Definition

Business Expenses are those expenses which are incurred to run, operate and maintain a business smoothly. Examples of business expense include travel & conveyance, salaries, rent, entertainment, telephone & internet expenses etc. The only key requirement is that it should be incurred for the business and no kind of personal costs is included.

List of Business Expenses

Some examples are very much standard in the business industry, which is as follows:

#1 – Salaries

Salaries of employees, workers, staff are the most common and important type of cost which can be found in every business’s profit and loss accountProfit And Loss AccountThe Profit & Loss account, also known as the Income statement, is a financial statement that summarizes an organization's revenue and costs incurred during the financial period and is indicative of the company's financial performance by showing whether the company made a profit or incurred losses during that more. It is the amount that is paid to the employees for their services to the business every month.

#2 – Telephone & Internet Expenses

In today’s time, no business can survive without the communication channel, and the most significant cost to run any business is the expenses of telephone and internet service. It is another basic and most common cost available in every business’s profit & loss. For increasing the revenue, every business needs to expand, grow, communicate with its customers, vendors, look after the policies of their competitors, and all of this is possible only when there are good communication channels available in the business.

#3 – Travelling & Conveyance

Travelling & conveyance is another common cost that is generally found in every profit and loss account. It is the costs that are incurred of the traveling of the employees, directors, or anyone for the business meetings, growth, communication from office premises to the place where such an event has to take place. Conveyance is the local traveling to a meeting, client, whereas traveling can be considered as out of station events visits.

#4 – Rent

Rent is a cost incurredA Cost IncurredIncurred Cost refers to an expense that a Company needs to pay in exchange for the usage of a service, product, or asset. This might include direct, indirect, production, operating, & distribution charges incurred for business operations. read more by those businesses who take the business premises on hire and run their business from a rented location. It is one of the significant costs other than salaries, which is of high value and a fixed expense.

#5 – Printing & Stationery

Printing and stationary is also a regular cost which is incurred by the business on the notebooks, registers, A4 sheets papers, pens, calculators and other necessary items used in the business in day to day working of the business.


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Deduction of Business Expenses

Deductible Expenses are those costs that are allowed as deduction as in the profit and loss account of a business. Deductible expenses are somehow considered as Business Expenses.

Business expenses incurred by any person from the business, be it an employee, director, owner, staff, would be allowed a deduction from the income tax calculation provided such costs are incurred purely for the business. The expenses need to be verified by the respective managers. Then they should forward the reimbursement of business expenses to the accounts department.

The accounting departmentThe Accounting DepartmentThe accounting department looks after preparing financial statements, maintaining a general ledger, paying bills, preparing customer bills, payroll, and more. In other words, they are responsible for managing the overall economic front of the more would, based on the Invoices/bills received and after proper approval of the managers regarding the expenses being incurred for business, can claim the deduction in the profit and loss statement of its business.

Other Types of Deductible Expenses

There are many types of costs, which are incurred by a business for smooth & successful running. Some are allowed as deductible, such as business expenses, and others are Non-Deductible Expenses such as Donations.

Other types of deductible expenses are which are not related are:

  1. Entertainment Expenses: These incur for the entertainment purpose of the employees, staff working in the entity. The company incurs such expenses to keep the employees happy and provide a better work environment. It is allowed as a deduction even though they are not related to a business directly.
  2. Staff Welfare Expenses: These are also the costs that are for the benefits of the employees working in the entity. These include expenses like tea, coffee expenses, snacks, and other celebrations expenses for the employees.
  3. Depreciation: DepreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more is an intangible business expenseExpenseAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising more that is not incurred in terms of cash/bank transactions. These expenses are for the use of machinery during the year, which is generally called normal wear and tear of the machinery over time.

How are Business Expenses Tracked?

The answer to the above question is straightforward. The person incurring such costs had to provide the Invoices/bills of the expenses that are for the business. Those invoices/bills will be verified by the designated person in the accounts department and must be approved by the respective managers. It can also be tracked from the bank statements of the business or through the credit card statement of the business if the expenses are paid from these banking sources.

Any expense paid through an electronic medium such as net banking, internet banking, credit card, the debit card can be tracked easily as they have a transaction id, reference id attached to every payment, trough which one can conclude whether it is a business expense or not.

Why do you need it?

A business expense is needed to run a business. For running any business, various types of costs are required to be incurred so as to operate the business smoothly and successfully. A lot of costs are recurring in nature. Rent and salaries are a significant amount of recurring expenses. Some of the expenses can be of one-time payment in the year, such as Annual Subscription, Annual Membership, and Depreciation. The only need for it is to run any business because none of the business can run without incurring expenses. Every business needs different kinds of expenses to run it.

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This has been a guide to Business Expenses and its definition. Here we discuss examples of business expenses, how to track it along with its deduction. You may also have a look at the following articles –

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