Every time I open up a new company file a lot of thoughts are going through my head. Is the balance sheet correct, have credit cards been properly booked, are the payroll liabilities $0 at the end of every pay period, if they have an organized expense list that is meaningful, or are
the QuickBoks accounts reconciled. The expense list (which I'll include as Cost of Goods Sold, Expenses, and Other Expenses) give you a true outlook as to where your business is currently spending its money. For this article I'll list out each category, explain what the category is comprised of, then give you common account names I use for a majority of my clients.
To make things easier and relatable we're going to use Homer's business Mr. Plow again to make sense of all of these. If Homer can figure it out then I sure hope you guys can make sense of it. Yes, there will be some grey areas (expenses that don't particularly fit into any one category) but at the end of the day all you can do is ask yourself if the expense was necessary to the well being of the business, if it was, then great, find an account for it and keep on moving.
Cost of Goods Sold - These are costs associated with the creation of your product, without these purchases you would not be able to create the product you offer.
- Merchant Fees - Homer takes Visa/MC/American Express and codes the fees as charge by his merchant processor to this account.
- Labor - Homer (not himself) pays his other plow drivers gross wages, the more jobs they create the more money he spends to deliver the product from his employees.
- Materials - Homer purchases salt to salt the drive ways when he is finished with them, because they are use to provide his product they're a Cost of Goods Sold
Expenses - Fixed Company Costs
- Advertising & Marketing - Homer buys shirts, advertises in the Shelbyville Times, and spends money on a small business inbound marketing coach.
- Automobile Expense - I categorized this into 3 sub-accounts. 1- Fuel, Homer buys fuel for his plow trucks. 2- Repairs & Maintenance, Homer replaces the tires and does regular oil changes. 3- Licenses & Fees, Homer pays for registration fees and the occasional parking ticket
- Bank Charges & Fees - When the Springfield bank charges homer $10 a month to keep his business checking account with them.
- Business Licenses & Fees - Every year Homer has to pay for his business license to keep it registered in Springfield.
- Computer & Internet - Homer has website registration fees, buys apps to keep his plow drivers in check, and just subscribed to DropBox!
- Contracted Services - Every now and again Homer hires Barney the Plow King (a sole
proprietor!) to do some extra jobs when he's overwhelmed. Homer keeps a bit on top then pays Barney a check. I typically put all 1099 contractors here as well.
- Dues & Subscriptions - Homer is a part of the Springfield Plow club and also subscribes to the magazine Plowing & You monthly, he expenses this here.
- Insurance - All of his insurance expenses are coded here such as general liability and auto insurance.
- Meals & Entertainment - You better believe that whenever Homer goes to Krusty Burger for a company meeting that this is being expensed here!
- Office Supplies - Homer buys a lot of pens, paper, and ink to print colorful graphs and send checks to vendors.
- Payroll - I categorize this into a couple of sub-accounts. 1- Salary, I would post expenses for people who are paid regardless of whether there is work or not. 2- ER Taxes, all employer taxes paid by his company Mr. Plow. 3- Payroll Fee, the fee that he pays his outsourced payroll company to do his payroll.
- Postage & Delivery - Every now and again Homer sends packages for Mr. Plow related activities.
- Professional Fees - Homer pays a lot of money to Lionel Hutz his attorney, Moe his bookkeeper, and Lisa his young CPA.
- Rent - Homer rents a space to hold his plows, keep his salt, and all of his general equipment.
- Repairs & Maintenance - The space Homer rents has a few leaks and needs to be painted rather regularly, he goes to Homer Depot a fair bit and expenses those purchases to Repairs & Maintenance.
- Telephone - Every driver needs a phone, he expenses that here.
- Travel - Every now and again Homer heads to the annual Plow Convention in Knoxville Tennessee, home of the 1982 Worlds Fair. His lodging, flight, and subsequent travel expenses go here.
- Utilities - His rented space requires that he pay Gas, Utilities, Waste, Water, and Electricity, these are his building utilities.
Other Expenses - Homer knows that some folks like to see EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization. Homer separates these into the Other Expense category to show what his Net Income is before these expenses are calculated.
- Taxes - At the end of the year Homer pays taxes on his earnings, it goes here!
- Interest Expense - Homer has a loan on his plow, the interest for the truck goes here.
- Amortization Expense - An expense that Homer waits for his CPA to give instructions on what his amortization expense is.
- Depreciation - Again, usually a line item that homer waits for his CPA to instruct the amount to put here.