Question

Although corporate entities do not detail expenses by programs, what is one way that corporate organizations classify expenses that could be a comparison to how governmental entities' classify expenses by programs?

Answer 1

Ans: A corporate organizations classifies an expense depends on the category the expense falls into. Using generally accepted accounting principles (GAAP), business costs fall into three general categories:-

Product costs: Any costs that relate to manufacturing an item for sale to customers are product costs. A common example is cost of goods sold, which reflects all costs the company incurs when making the items sold in the current period. For a retail shop, cost of goods sold is what it pays to buy the goods that it sells to its customers.

Period costs: These costs, while necessary to keep the business doors open, don’t tie back to any specific item the company sells. Examples of period costs are shop rent, telephone expense, and office/shop salaries.

Systemic costs: This category includes expenses a company logically allocates to financial periods based on when it receives the benefit of the expense. A good example is depreciation. When a company purchases a long-term asset like a computer or machine, the cost of the asset is spread over its useful life, which may be years after the purchase. Many companies depreciates shop furniture, fixtures, and equipment.

A government entities classify its expenses by preparing its Statement of Accounts for each governmental function and program activities .

Function means that group related activities that are aimed to accomplish a major services or regulatory responsibilities like public safety.

Program means that group activities , operations or organizational units that are directed to a special purpose or objectives like highway betterment etc..

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