Expense account is nominal
account which is made for recording the expenses. There are lots of expenses
account are made in business like salaries expenses account, rent expenses
account, electricity expenses account, Internet expenses account and other small
expenses account. If there is any new expense in the business, we can open its
expense account by writing name of expense before expense account.
This account is prepared T
form. Similar expenses will be debited in same expense account. For example, we
pay rent at the end of each month. So, we will debited the amount of rent in
rent expenses account. Same expense will record in the payment side of cash
book. In the end of year whole expense account’s balance will transfer to
profit and loss account. With this, expense account will close and will not go
its balance to balance sheet.
Profit and loss account is
made for comparison of revenue and expenses. When all expenses are debited in
profit and loss account. We can compare it with total revenue. Result of this
matching may be net profit or net loss which will transfer to balance sheet’s
capital account.
Importance of Expenses
Accounts for Income Tax
Calculation
As per Income Tax Law
1961, all expenses are not accepted. There is accepted expenses accounts whose
list is given in taxable income of business and profession. In self assessment
of income tax, we will add only accepted expenses accounts in profit and loss
account and then it will be matched with accepted revenue. Difference will be
taxable income for income tax purpose.
Revenue Expenses Account
Vs Capital Expenses
Account
Revenue expenses are those
whose benefit, we get within one year. So, all the revenue expenses account
will written off by transferring to profit and loss account. We have to take
benefits of capital expenses in many years. So, we transfer all capital
expenditure accounts to balance sheet. Electricity expenses account is revenue
expenses account and furniture expenses account is capital expenses account.
Electricity expenses account’s total debit balance is Rs. 50,000, it will
written off by transferring expense side of profit and loss account. On the
other side, we have furniture expenses debit balance of Rs. 1,50,000, it will
go to fixed asset side of balance sheet. Same balance will be live by showing
opening balance of furniture account in next financial year. Every year, we
will deduct depreciation. Same depreciation account will written off by
transferring to profit and loss account.
