9/27/2023 0 Comments Flexible expenses vs periodic![]() It goes without saying that variable expenses are often driven by factors beyond a company’s control. Salary increases might be becoming more of a variable expense in the short-term, however, with U.S. For instance, in times of low or consistent inflation, wage increases might remain fairly static, with roughly the same percentage increase needed to cover cost of living increases each year. Sometimes, fixed expenses can become more variable. Bad debt expense, which cannot be predicted from one year to the next.Interest payments, if companies don’t have fixed-rate business loans.Depreciation if the depreciation method changes the annual expense (an accelerated method, for example).Worker’s compensation insurance, which can increase if a company has filed insurance claims.Utilities, which can change depending on weather.Variable: Variable expenses can fluctuate from month to month or other periods of time, with good examples including: Wages for hourly workers who are paid overtime may be considered variable expenses, since the cost may change each month. Depreciation, if the same amount is expensed each year (straight-line depreciation).Ī good example of a fixed expense is salary, which will be the same every pay period until a particular employee gets a raise.Employer contributions to retirement plans.Some premium-level social media accounts.Other business insurance premiums, such as liability insurance.Health insurance, though it can vary depending on an employee’s age range.Employee benefits such as vacation, which often accrues at a set percentage based on how much an employee works.Mortgage payments for business property like office space, with the combination of principal and mortgage interest generally the same fixed amount each month.Payroll taxes, generally the half of Social Security and Medicare that an employer covers.Fixed expenses for companies can include: Companies can forecast fixed expenses with a fair degree of certainty in the budget. ![]() Speaking broadly, though, common business expenses fall into three primary spending categories:įixed: These are expenses that typically stay the same or rise at a predictable rate. There are a huge range of potentially deductible business expenses. Basics of Business Spending Categories: Three Major Types Today, we’re going to explore what it takes for companies to efficiently monitor business spending categories. Thus, it’s imperative that companies have tools to categorize expenses, including virtual payment cards. Thing is, having to monitor business spend can easily wind up being a time suck for companies and their accounts payable personnel, who can stay busy enough just making sure vendors get paid on-time. Entertainment costs can usually be broken down further into categories such as a cable television subscription, music downloads, dinners at restaurants, and vacations.Well-managed companies track, manage, and control their business spending categories.īusinesses that closely monitor the major categories – fixed, variable, and periodic expenses – increase the odds of maintaining cash flow, planning for ups and downs, and logging as many deductions as possible. When financial advisors counsel individuals, they routinely ask them to estimate their expenses, separating those that are necessary and non-negotiable, like mortgage and car payments, and those that are flexible, like entertainment costs. To note your flexible expenses, review your credit card and checking account statements every month to see what non-essential items you are spending money on.To create a budget and stick to it, it is critical that both fixed and flexible expenses are included.Even inflexible expenses can contain flexible components, such as choosing more affordable substitutes.Flexible expenses stand in contrast to fixed expenses, also known as inflexible expenses.In personal budgeting, a flexible expense is a non-essential expense that can be cut back or eliminated.
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