Different accounting software uses varying classifications, which businesses must adapt to for consistency and clarity.
Xero categorizes expenses into three main types:
- Cost of Goods Sold (Direct Costs)
- Overheads
- Expenses
MYOB, on the other hand, uses a simpler classification:
- Cost of Sales
- Expenses
The classification of certain expenses, such as lease, energy, freight, and warehousing, often varies by business. These costs may sometimes be included in the Cost of Sales or classified differently depending on the company’s accounting policies. Consistency in classification is critical to ensure long-term comparability.
Overheads
Overheads refer to expenditures that cannot be directly traced to producing a specific product or service. Unlike operating expenses such as raw materials and labor, overheads include:
- Administrative Overheads: Office supplies, salaries for administrative staff, etc.
- Manufacturing Overheads: Factory utilities, maintenance, etc.
Overheads can be further categorized as:
- Fixed Overheads: Costs that remain constant over time, like rent.
- Semi-Variable Overheads: Costs that fluctuate slightly based on usage, such as power or telephone bills
Marketing expenses also fall under overheads, highlighting their importance in overall business operations.
SG&A
The term Selling, General & Administrative (SG&A) is widely used to encompass all overheads in the Profit and Loss statement. SG&A includes all non-production expenses incurred during a specific period.
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