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Analysis of expenses Case Study

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Introduction

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Expenses accounts are basically created to ascertain the business spend value in terms of expenditure in the business for an accounting period. According to the AASB 101, presentation of financial statements is abided by a few rules and norms. Under this the expenses are mainly ascertained in the income and expenditure account for the stated company books. The main aim of the study is to ascertain the application of AASB 101 in maintaining the expenses account for an entity. Expenses mainly include the “Costs of Sales, Cost of Goods Sold, Costs of services, Operating expense, Finance Expenses, Non-operating expenses, Prepaid expenses, Accrued expenses”. AASB also implies high quality of bookkeeping of all the firms operated in the country australia.

Analysis of expenses on the basis of nature or their function

The expense method provides the relevant information about the aring expenses from the main input which is consumed to accomplish the goodwill of the recognised organisation. It generates the income statements of the firm by using the softwares like the TallyPrimne and alosd the SAP for generating reports for gathering all the relevant information. The COGS is calculated on the basis of the goods that are sold in the market. The calculation if the gross margin is examined on the basis of the difference in between the revenue and the cost of goods sold (GOFWAN, 2022). The costs that are additional are involved and this are included in the marketing and advertising.

The non-cash expenses are examined by finding out the cash position that should be accurate for the business. This actually shows the gains and losses of the recognised company. These expenses are tracked with the help of the operating expenses, administrative expenses and also the One-time expenses. The operating expenses are related directly with the products production and lso with the core of the organisation (ALAWAQLEH, 2021). The administrative organisation describes the travel and rent for the company. The marketing expenses and advertising are important for the organisation to increase the sales and also the money spent for the company.

Benefits of maintaining expenses account for a business entity

The benefits of maintaining the expenses account are beneficial as it provides the financial status at once. This is important as it helps in making relevant decisions for the company as it helps in preparing the returns on taxes. The advantage of maintaining record for the expenditure and income is because it gives concern for all the datas recorded in the past and current trends. The profit and loss account provides the relevant information about the income of the enterprise and also the expenses that result in the loss or gains of the organisation. The profit and loss is the most important in the business accordingly as it shows the direct expenses and also the gross profit. Expenses that are generally connected with the manufacturing as well as the purchased of the goods (Khasanah, 2022). Additionally, the gross profit is important because it is useful in the utilisation for paying their obligations for all the operating expenses. The indirect expenses are assumed for the administrative expenses such as the rent, salaries and administrative expenses.

Limitations of maintaining expenses account for a business entity

The disadvantages of maintaining the financial accounting are the provision for control and also for the classification of general manners. In other words, the financial accounts are important in detailed accounting and slo for the consumption of materials. The non availability of the materials results in the workers employed and also the number of workers that are needed for some other jobs (Alshirah et al, 2021). This is important for paying their total sages and also for maintaining the separate record for the required entity. For the preparation of the financial accounting the costs are important for the classifying the indirect and the direct expenses.

There is no provision for the standard system. It is important for the production in a large amount and also the managers will be able to pay for terh supervise each other. There are no records for wastage and no steps are taken for the elimination and minimization for different wastage. There is no instance in the financial dealings of the accounts as it only deals with their profit that is incurred overall with the help of the concern of the organisation. There is no provision for the concern of the comparison of the costs and is important for the planning and making important decisions for the company.

Presentation of financial statements

According to the AASB 101, the expense account for an entity

Business Name

Profit & Loss Year Account

FY 2022

Turnover

Sales

115,000

Other Income

3,000

Total Income

118,000

Cost of Sales:

Materials

70,000

Total Cost of Sales

70,000

Gross Profit

48,000

Overheads:

Wages & Salaries

12,000

Rent & Rates

9,000

Insurance

7,000

Bank Charges

Light, Heat & Power

3,800

Telephone

1,800

Advertising

5,000

Print, Post, Stationery

1,200

Motor & Travel

12,000

Professional Fees

Miscellaneous

Loan interest

1,390

Depreciation

5,000

Total Overheads

58,190

Net Profit

(10,190)

Table 1: Expenses account in income and statement account

(Source: self-created)

Analysis

It has been analysed from the given data that shows the turnover that includes the total income of the business which was 118,000. The cost of sales was 70,000 and the gross profit is analysed at 48,000.The overheads included the wagers and salaries, insurance and rent and rates. The bank charges include the Light, Heat & Power and Telephone and many more including the depreciation. The total overhead of the company was 58,190. The net profit of the company was analysed at (10,190).

Expenses classification that must be used by an entity

The classification of the expenses helps in categorising in the operating expenses and also in the non-operating expenses. The major headings in which the expenses are classified and reported are Cost of goods sold, operating expenses and also in the financial expenses (Lutfi et al, 2021). Fixed expense is useful as it helps in non fluctuating expenses for the changes that occur during the production in the organisation. This puts the level up and also the sales volume up for the organisation. The variable cost includes the cost of goods sold and also the raw materials that are used in the organisation. This generally includes the production, packaging, commission and loses the wages that are needed eventually for increasing the profit of the company (Jarahet al, 2021). The variable expenses are important as it can help in changing the amount at any specific period of time. There are no records for wastage and no steps are taken for the elimination and minimization for different wastage. Some of the common examples of variable expenses include the credit cards, utilities and also the packaging costs.

Conclusion

It has been concluded that the company is using the AASB 101 in order to analyse the expenses for the future development. Therefore, through this accounting standard tha company could be analysis their financial crash predicts the future cash flow. Although, this accounting standard helps to calculate the company's profit and loss account and also calculates the balance sheet statements. Hence it will analyse the different types of expenses based on their nature. There are no records for wastage and no steps are taken for the elimination and minimization for different wastage. Therefore, the non-cash expense is examined through finding the cash flow implemented that should be accurate for the business. Aslo the accounting standard helps to classify the expenses; therefore, the company is used as an entity in future for the development.

References

ALAWAQLEH, Q.A., 2021. The effect of internal control on employee performance of small and medium-sized enterprises in Jordan: The role of accounting information system. The Journal of Asian Finance, Economics and Business, 8(3), pp.855-863.

Alshirah, M., Lutfi, A., Alshirah, A., Saad, M., Ibrahim, N.M.E.S. and Mohammed, F., 2021. Influences of the environmental factors on the intention to adopt cloud based accounting information system among SMEs in Jordan. Accounting, 7(3), pp.645-654.

GOFWAN, H., 2022. Effect of accounting information system on financial performance of firms: A review of literature. DEPARTMENT OF ACCOUNTING (BINGHAM UNIVERSITY)-2nd Departmental Seminar Series with the Theme–History of Accounting Thoughts: A Methodological Approach. Vol. 2, No. 1.

Jarah, B.A.F. and Almatarneh, Z., 2021. The effect of the elements of accounting information system (AIS) on organizational culture (OC)-A field study. Academy of Strategic Management Journal, 20, pp.1-10.

Khasanah, U., 2022. Does Accounting Information System on Financial Report Transparency: A Literature Review. Journal of Accounting and Finance Management, 3(1), pp.21-27.

Lutfi, A., Al-Okaily, M., Alsyouf, A. and Alrawad, M., 2022. Evaluating the D&M IS Success Model in the Context of Accounting Information System and Sustainable Decision Making. Sustainability, 14(13), p.8120.

Muliyati, D., Amir, A.M., Zahra, F., Yamin, N.Y. and Pakkawaru, M.I., 2021, February. The Effect of the Adoption of Government Accounting Standards, Apparatus Competence and Accounting Information System on the Quality of Local Government Financial Reports. In International Conference on Strategic Issues of Economics, Business and, Education (ICoSIEBE 2020) (pp. 323-326). Atlantis Press.

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