Expenses

The opposite of income is expenses. We have already said that goods bought to use in a service business are called material cost and goods bought to be sold by a trading business are called purchases.

If we use our example of selling Coke and we say that we took a taxi home, which costed us N$6,00, it means that this is money paid to get the product from the provider (business/person selling goods) to our business. This is called carriage inwards or carriage on purchases.

Other expenses that we can add to the list are:

• Telephone, water and electricity, etc.: Expenses which should be paid to make sure that the business can carry on doing business from day to day. Each expense has its own account.
• Rent expense: If we rent a building from someone and have to pay for hiring the building.
• Wages: The remuneration workers receive when they are paid weekly. This is normally paid in cash or by a cashed cheque.
• Salary: The remuneration workers receive when they are paid monthly.
• Interest on loan: If you borrow money from the bank you must pay interest to them because you use their money.
• Interest on overdraft: If you use the facility at the bank to spend/use more money than you have in your current/cheque account, then you have to pay the bank interest for using its money.
• Interest paid: Interest which you have to pay to your creditors if you do not pay the outstanding amount you owe them in time.
• Discount allowed: An amount that the debtor does not have to pay if he pays his account on time.
• Bad debts: If a debtor is not able to pay his account, then we write off the account as irrecoverable. It could be that he is bankrupt or has disappeared.
• Bank charges: Refer to the fees that the bank charges its customers for rendering them services. The bank, a service business, requires a fee for handling money entrusted to them, e.g. the handling of cash when deposited, for every cheque we issue, etc.
• Depreciation: This is when the value of an asset is decreasing or becoming less. For example, when you buy a new vehicle, you will not be able to resell it for the same amount that you paid for it originally. Each year the value of the vehicle becomes less. The amount by which the value of the vehicle decreased is called depreciation, and what it is worth is called the book value.