Direct and Indirect Expenses:
Learning Objectives:
-
Define and explain
direct and indirect expenses.
-
What is the difference between direct and indirect
expenses?
Expenses means the expired costs incurred for
earning revenue of a certain accounting period. They
are the cost of the goods and services used up in
the process of obtaining revenue. In other words, it
becomes possible to earn revenue with the help of
expenses. For example, purchase of goods, wages,
salaries, rent, carriage, customs duty etc. We have
to incur all these expenses in order to earn
revenue. Expenses are mainly divided into two
categories:
-
Direct
expenses
-
Indirect expenses
These two
types of expenses are briefly discussed below:
Direct Expenses:
Expenses
connected with purchases of goods are known as direct
expenses. For example, freight, insurance, of goods
in transit, carriage, wages, custom duty, import duty,
octroi duty etc. Without incurring these expenses, it is
not possible to bring the goods from the purchase point
to the godown of the business. such expenses are
collectively known as direct expenses.
Indirect Expenses:
All expenses other
than direct expenses are assumed as indirect
expenses. Such expenses have no relationship
with purchase of goods. Examples of indirect expenses
include rent of building, salaries to employees,
legal charges, insurance of building, depreciation,
printing charges etc. So
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