Any business owner knows to make money a certain amount needs to be spent. Some necessary expenses paid are done at a later time similar to using a credit card. These are incurred expenses. Because these expenses incurred are paid off at a future date, they're labeled as incurred expenses until payment is made.
Some incurred business expenses are necessary for operations to continue to run smoothly. The costs incurred are deferred to manage finances easier. Companies will need to pay off any ongoing accrued expense during business operations.
Incurred expenses can include the following-
- Credit cards- Using a credit card for expenses helps a business maintain control of the cash flow in the company account. Having payment dates setup each month helps accountants plan budgets, track expenses and create financial reports.
- Payroll- Staff salaries are an incurred expense. Most business owners pay bi-monthly. It's during the in-between time where the employee labor becomes an incurred cost.
- Rent- The building where the business is open will have a rent payment or mortgage. These are both considered an incurred expense.
- Materials- Any materials needed for initial start-up or continued daily operations is an expense incurred by the business.
- Utilities- Phone systems, Internet, power, gas, and other utilities are ongoing expenses paid on a monthly basis.
- Loans- If a business bowers money in the form of a loan, that money and any interest attached will be considered an incurred expense.
Incurred expense and paid expenses
The differences between an incurred expense and a paid expense concerns a matter of reimbursement for a fee considered outstanding. Incurred expenses are a charge when an asset has been used. The charge is billed but awaiting payment. A paid expense is when the company has already paid off an outstanding balance.
For example, monthly rent would be considered an incurred expense during the month the location for the establishment is being used. A paid expense is the previous month's rent which has already been paid for.
Examples of incurred expenses: Incurred expenses can include the following-
Restaurants have high startup and overhead costs associated. Two categories that incur high expenses are food and labor. Financial statements will show food and beverage as cost of sales. Other expenses will be categorized as operating expenses. Their categories can be broken down further to understand which are incurred expenses.
Salary and Associated Labor Costs
Any costs associated with labor will be in this category. That includes staff salaries and other wages like bonus pay and benefits. Unemployment taxes and other commissions will also be found under labor costs. Restaurant managers can adjust the costs associated with labor by carefully planning out shift schedules according to business needs.
Cost of Goods Sold
COGS includes food and beverage costs which make up a large expense for most restaurants. Any equipment used to prepare meals are also part of COGS but won't be listed as that on the restaurant's income statement.
Marketing and Advertising Expenses
Marketing is an important function to keep revenue coming in at a restaurant. These expenses include any type of promotional advertising designed to entice customers to dine at the restaurant. The restaurant menu is a perfect example of marketing and advertising. Other marketing expenses include websites, mobile apps, or even entertainment options.
Real Estate Occupancy Expenses
Occupancy expenses will include any cost accrued in relation to the physical location where the restaurant is kept. These business expenses include any associated parking fees along with rent, insurance, tax and utility fees.
Repairs and Maintenance
Restaurants demand ongoing maintenance and repair to stay up and running. These expenses incurred are divided amongst the maintenance needs of the property. This includes the outside areas of the building, and inside where the kitchen and food prep stations require the most attention.
Daily Administrative Costs
Administration expenses include professional fees related to accounting and bookkeeping. Similar to other small business requirements this can include office supplies, phone, and Internet expenses. Health licenses and food and beverage are also part of admin costs.
Restaurant Expenses Incurred:
- Incurred expenses mean any money a business owes from purchases made or recurring expenses.
- Controlling expenses incurred will help businesses keep a positive cash flow for continued productivity.
- Some incurred business expenses that continue monthly are necessary, such as utility charges or rent.
- Expenses incurred at restaurants include the cost of goods sold and repairs and maintenance.