Expenditure

Contents:

• When do expenses arise?


• Effort and operational service provision


• Expenses - Definition & Explanation – Summary

Expenditures are all expenses incurred on use of goods and services. The expenses are always periodized.

Expenses arise in a company through the "value-based consumption of goods and services". So, when a company removes materials from the warehouse and delivers them to production, it's an expense. Expenses influence the company's success.

Examples of expenses

1. Wages/salaries


2. Control


3. Energy / Water (consumption)

When do expenses arise?

In accounting, the expenses are practically a superordinate term, which always refers to the total assets of a company. Accordingly, this is understood to mean the assessed consumption of goods, whereby a specific billing period is used for this purpose. Expenses include all reductions in operating net assets that did not result from a payment of capital to the owners of the company.

It should be noted that expenses are always prioritized. For example, a company today can buy a machine for 1 million euros, which will then be used for 10 years. Accordingly, an issue of 1 million euros has arisen, but no expenses of 1 million euros. For the acquisition costs are distributed over the useful life and depreciated accordingly. Each individual depreciation then represents an expense.

Effort and operational service provision

Every company has a specific business purpose. For example, a furniture manufacturer produces furniture and a baker sells sandwiches. However, there may also be expenses that do not arise directly from business operations (neutral expenses). For example, a company may make donations to charitable associations, which is considered an expense but would not be included in the income statement.

Even extraordinary expenses, which arise only once and unforeseen, are not to be recorded as costs. For example, it may be uninsured disaster damage or theft. In the context of cost and activity accounting, the recorded expenses must, therefore, be analyzed and characterized accordingly as neutral or operational. Only then it is ultimately possible to determine an exact operating result.

Expenses - Definition & Explanation - Summary

Expenses are reductions in the net worth of a company

They can arise from both external and operational incidents

By contrast, costs always arise due to the business purpose itself

Expenses - Costs

Contents:

• What are expenses?


• What are costs?


• Difference expenses and costs examples


• Difference Expenses - Costs - Definition & Explanation – Summary

Expenses are all activities that reduce a company's equity in a given accounting period. It does not matter whether these expenses were incurred for non-operational and operational purposes.

Costs are all expenses incurred during the operational performance process. Expenses of wages and salaries are, for example, also costs. (Logical that the employees who work in a company are integrated into the company performance process).

What are expenses?

Expenditure is always to be considered when the expenses of a company are periodized. Expenses are incurred (usually) within the scope of the company's service provision and are compared to the income.

Examples:

• A company pays its employees 150,000 euros in salary in January.


• For materials that are consumed directly in production, supplier bills 250,000 euros.


• Repairing a machine costs the company 1,000 euros.

However, a distinction must be made between operating and non-operating expenses. The former is always incurred when the expenses are related to the company's main business activities. For example, a furniture manufacturer could buy wood which is then used to produce chairs. On the other hand, non-operating expenses are incurred if the business transactions have nothing to do with the actual core business. For example, the company could rent apartments above office buildings and install a new heating system here.

What are costs?

Usually, the costs are derived directly from the expenses. Basically, it is the valued consumption of economic goods, which in turn serve the creation of other goods or services. Based on the expenses, the costs are calculated as follows:

Expenditure

- Neutral expenses

+ Additional costs (e.g. imputed company wage, imputed interest or similar)

+/- Conversion of imputed expenses into other costs (a form of imputed costs)

Thus, the costs related to the actual core business of a company, the aforementioned expenses such as rented apartments would not be included. The reason: In practice, the operational business of companies is crucial to their continued existence.

Difference expenses and costs examples

Example 1: A furniture producer decides to donate 100,000 euros to a charitable organization. This is undoubtedly an effort that cannot be recorded as a cost, however. Although the effort is related to the period, albeit external. After all, the donation is not directly related to the actual service provision of the furniture manufacturer.

Example 2: In the first quarter, a furniture producer buys raw materials worth 1 million euros. These raw materials are needed to subsequently produce chairs and cabinets. Because this effort is related to the period, not extraordinary and related to operational purposes, it also involves costs.

Example 3: In the factory of the furniture producer, a fire breaks out, causing a great deal of damage. There is a need to buy new production facilities worth 10 million euros, of which only 9 million euros are covered by insurance. Although the expenses are directly related to the provision of services, they are not costs. Because this effort is to be described as extraordinary and not on a per-period basis.

Summary

1. Expenses are incurred as part of the provision of services for goods or services


2. This is also the case with costs, but they are always period-related, operationally-related and not extraordinary

How does money work?

As a means of payment, money is nowadays indispensable. After all, who still operates today's traditional barter trade as one knows it from earlier times? It is simply more convenient to trade in a form of payment that everyone can use and that everyone accepts as a mode of payment.

What is money?

Money has become so integrated into the daily lives of people that hardly anyone could make a concrete definition about money. Basically, money is all liquid assets available to the state, businesses, and individuals. These include all three types of money, such as coins, banknotes and book money. A bank is a financial institution, which can be used for money transfer from one place to another.

What can you do with the money?

Actually, a rather superfluous question on which you usually get the answer "everything". It should be noted in this regard, however, that you cannot buy everything in life for a long time with the mere money. Affection, real friendships, and love, for example, you cannot buy using easy money in the world.

Difference between Efficiency and Effectiveness - An Easy Approach

Contents: Efficiency and Effectiveness

• 1. Definition of effectiveness


• 2. Definition of efficiency


• 3. Effectiveness and efficiency in everyday life (examples)


• 4. Summary

The difference between efficiency and effectiveness is not that easy to understand. We will try to light up the difference.

1. Definition of Effectiveness

Effectiveness is the measure of the achievement of goals. Which means the ratio of the desired goals to be achieved. The underlying effort does not matter.

Or:

Effectiveness is the completeness and accuracy with which a particular goal is achieved.

"Doing the right things"

This raises the question of whether the public or the customer benefits and whether "the right things are done".

The effectiveness has a greater political significance than economic efficiency. Efficiently doing wrong things does not lead to the goal, but is usually a waste of money.

2. Definition of Efficiency

Efficiency represents the ratio of input to output as well as performance to cost. Efficiency thus corresponds in many cases to cost-effectiveness.

Or:

Efficiency is the effort involved in achieving a specific goal in proportion to completeness and accuracy.

"Doing things right"

This raises the question of whether "things are done right" (effectiveness: "doing the right things").

Efficiency is without question very important. But if the wrong things are done efficiently, it's a waste. Hence, the effectiveness has a higher priority. Strategy goes before efficiency.

3. Effectiveness and efficiency in everyday life (examples)

Rico wants to clean his bike on a warm summer's day. However, if he just lazes and basks all day, he is not effective in the sense of the actual goal (to clean the bike). Hence, he (in terms of goal achievement) makes the wrong thing.

If he only cleans the bike with water and a rag, he is quite effective (since he is working to reach his goal), but not efficient. He would be efficient and effective if he does the right thing with the right means (suitable cleaning agent, brush, etc.) (Cleaning the bike).

4. Summary

Effectiveness is a measure of output - doing the right things. One possible sub-goal of effectiveness is efficiency. This represents a relation between "input" and "output". It also serves as a benchmark for resource economy - doing things right. Thus, efficiency is not a sufficient or necessary condition for effectiveness.

The difference between effectiveness and efficiency is not always immediately obvious. "Doing the right thing" answers the question of WHAT - What needs to be done to reach the goal? The right thing to do then, answers the question of HOW - How can it be implemented? Aligning one's own actions in everyday life in terms of effectiveness and efficiency guarantees a lasting success - private, professional and entrepreneurial.