Incidental Expenses Meaning
Incidental expenses are minor, non-budgeted expenses that are not directly related to primary service and do not arise during the normal course. Examples include employee business trip expenses such as food, lodging, tips to hotel staff, tips to baggage carrier, gifts given to customers, newspapers, laundry services etc
Types of Incidental Expenses
They are primarily of three types
#1 – Employee Related Expenses
Employee Related incidental expenses are those that arise during employee business trip such as food, lodging, tips to hotel staff, tips to baggage carrier are few expensesExpensesAn 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 capital. which are incurred by the employee during travel for business. Sometimes employees during business trips pay some tip for laundry services, toll fees during their travel etc.
#2 – Business-Related Expenses
Business-Related Incidental Expenses are ancillary expenses incurred when a gift is given to customers such as wrapping cost, carry bag. It also expenses related to the birthday celebration of an employee on items such as cake, candle, decoration etc.
#3 – Management Related Expenses
Management-Related Incidental Expenses are those expenses which are incurred by the management to encourage their employee, such as paying for their newspapers, laundry services, food during business meetings etc.
- These kinds of expenses are very difficult to track because of incidental in nature. For example, a person after his/her business tour claims some expenses such as tips paid to the hotel staff. Since these kinds of expenses do not carry any bill, it hard to track the same.
- It may result in fraud while claiming such expenses from the company. For example, since these kinds of expenses mostly don’t carry any bill which results in high chances of unnecessary claiming.
- There is a high chance of duplicate bills submitted to the business, which is very difficult to track due to seasonal in nature. For example, these kinds of bills are not a tax invoice. Anyone can produce fake bills and claim the same.
- In the case of a big organization, the volume of bills is also high and it is difficult to check each bill.
- Due to variation in the number of incidental expenses, profit and loss account tend to fluctuate.
- It doesn’t play an important role in decision making.
This has been a guide to Incidental Expenses and its meaning. Here we discuss its types along with examples, and limitations. You can learn more about accounting from the following articles –