The effort arises through the consumption or use of goods and services, through taxes and other (other) expenses. These include, for example:
- rental fee
- Energy / water (consumption)
- Wages / salaries.
- Consumption of operating, raw and auxiliary materials.
The income (revenue), on the other hand, arises from the sale of operational services. Examples are:
- Interest income
- Income from securities transactions
Every company has expenses and income and every entrepreneur naturally tries to keep the expenses lower than the income – because this is the only way to achieve a profit, i.e. an annual surplus.
In general, the term “effort” can be described as a service or a certain effort that must be carried out in order to achieve a specific benefit. The use can be in the form of money, working time or material, for example, from both a quantitative and a qualitative point of view. The expense is offset by the proceeds. The term expenditure is also used as a synonym for expenditure.
Effort: This is how it is posted in financial accounting
In the context of financial accounting, the expense must always be seen with the company’s net assets. The expense is defined here as the sum of all expenses that reduce net assets. This includes the company’s financial assets and all tangible assets.
From this it can be deduced that the expenses include all flows of value that reduce equity – and that in a specific accounting period. The income and expenses are recorded in the income statement and income statement. In this context, also between the effort in normal business activity and the extraordinary effort. Operational expenses include, for example, personnel costs, depreciation, material costs, storage costs and advertising expenses.
However, in the context of cost and performance accounting, a distinction must be made between operational and neutral expenditure. The term “operationally related) already reveals that this is expenses that are incurred regularly and due to the operational purpose. This effort is also referred to as a specific effort or operating expense. In the case of neutral expenses, on the other hand, all expenses are recorded that are not directly related to the operational services and may include:
- Disaster damage
- Exchange rate losses
- A lost litigation
The booking of expenses and income
The profit accounts are divided into:
- Expense costs and
- Income accounts,
just depending on what you absorb: effort or income.
The balances of the profit accounts are included in the income statement. The expense reduces the equity account and thus represents a disposal on the equity liability account. A departure from the liability account is posted on the debit side and the expense is therefore also included in the debit as a departure.
A return leads to an increase in the equity capital and thus it represents an addition to the equity liability account. The receipts to the liability accounts are in the credit and therefore the income is also posted in the credit.
Close the success accounts
When it comes to closing the profit accounts, the expense and income accounts represent sub-accounts of the equity, as they influence it directly, as additions. However, they are not concluded directly via the equity account, but via the profit and loss account.
Expenditure explained in bullet points
- In business administration
- The assessed consumption of all goods and services in a billing period
- The effort can, but does not have to, include costs, expenses and payments
- The demarcation to the expenses
- Expenses do not automatically represent expenses
- An expense only becomes an expense if there is a business transaction affecting income
- The demarcation of costs
- Costs are only incurred in the context of operational production
- An effort is incurred throughout the company and thus also in non-production areas such as sales and / or administration
- The purpose effort
- This is that part of the expenses that are directly related to the operational purpose and fall within the period under review.
- The expense of financial accounting corresponds to the operating expenses (costs) and these are recorded in the cost and performance accounting.
- A distinction is made between basic costs and other costs
- With the additional costs, the purpose effort forms the costs
- The neutral effort
- This is part of the effort that has no cost character.
- Not aimed at the operational purpose
- So extraordinary in its type and amount that it cannot be offset as a cost and it falls in a different billing period.
- The types of neutral effort
- External expenditure: There is no relationship whatsoever with the production of an operational service (the purest case of neutral expenditure)
- The expenditure unrelated to the period: Here the expenditure is operationally related, but does not fall into the period in which the corresponding production factors are used.
An example: the back tax payment or credit memos for the past fiscal year
- The extraordinary effort: This is so extraordinary in its type and amount that it is not taken into account as a cost. An example: theft or uninsured catastrophe damage.
- The valuation-related expense: This includes the special tax depreciation.
- Effort is a service that is provided to achieve a specific benefit.
- Effort is not the same as expenses and costs.
- There are four types of Neutral Effort.
- The opposite of effort is called income.