Basic Expense Categories for a Business

For a business, expense categories help in tracking and managing spending efficiently, ensuring accurate financial reporting, and maintaining control over the budget.
While accounting systems will have the basic expense accounts common to most businesses, that does not mean that you have to use them.

Here are a few basic expense categories for a business. This is never a complete list because there is not one list that can cover all the expenses.

1. Cost of Goods Sold (COGS):

- Raw materials

- Manufacturing costs

- Inventory purchases

2. Payroll:

- Employee salaries

- Wages

- Bonuses and commissions

- Payroll taxes

- Employee benefits (health insurance, retirement contributions)

3. Rent and Utilities:

- Office or retail space rent

- Electricity

- Water

- Heating and cooling

4. Supplies and Materials:

- Office supplies (paper, pens, etc.)

- Production materials

- Maintenance supplies

5. Marketing and Advertising:

- Online advertising (Google Ads, social media)

- Print advertising (flyers, magazines)

- Promotional materials (business cards, brochures)

- Marketing research

6. Travel and Entertainment:

- Business travel (flights, hotels, meals)

- Client entertainment (dinners, events)

- Conferences and trade shows

7. Professional Fees:

- Legal fees

- Accounting and bookkeeping services

- Consulting fees

8. Insurance:

- General liability insurance

- Property insurance

- Workers' compensation insurance

- Professional liability insurance

9. Technology and IT:

- Software subscriptions (CRM, productivity tools)

- Hardware (computers, printers)

- IT support and maintenance

10. Depreciation:

- Depreciation of equipment and machinery

- Depreciation of office furniture

11. Taxes:

- Business income tax

- Sales tax

- Property tax

12. Rent and Lease Payments:

- Equipment leases

- Vehicle leases

13. Bank Fees and Interest:

- Bank charges

- Interest on loans and credit lines

14. Miscellaneous:

- Postage and shipping

- Memberships and subscriptions (industry associations)

- Small expenses not categorized elsewhere

What am I saying?

These expense accounts (or categories) can be tailored to fit the specific needs of your business, and more detailed subcategories may be added for precise tracking and reporting. Proper allocation ensures better financial management and helps in analysing the financial health of the business.

I was asked, "I cannot find the correct expense account for this expense, what do I do?"
My answer: Just add one.

BEWARE: IF you are going to add an expense (or any account), MAKE SURE it is setup CORRECTLY! This can go wrong and will cause problems later on. Always consult an accountant before doing so. They do not have to do it for you but the guidance is invaluable. Yes, you can ask me:)!

Does that mean that you can have as many accounts in your accounting as you want?
Technically, yes.
Realistically, you should not do this.

Okay Bruce, please explain this...

To be 100% technical, You can have an expense account for anything but the down side to this, is that you end up with a list as long as your leg which is cumbersome and eventually useless.

The basic categories are there because they cover the basics. Sounds redundant but it's true. Most expenses in any business, can be put into on of those categories and it is simpler for you and or your accountant.

The main reason for keeping the number of accounts down is the fact that the tax return you fill in will have those categories (or should) and it cuts down the amount of items going into "other expenses", which, can decrease the chance of the tax man asking about it. 

Just because you have unique account names, does not, on any level, say that you are hiding something but they do not know that for sure.

Lastly, as I always say, "If your accounts are complicated, you are doing it wrong."

Keep it simple - you cannot go wrong with it.