Expense Accounts

Expense accounts are used to classify your operating overheads. They are equivalent to the expense section of a general ledger chart of accounts. Note that if you are using CAPITAL GL Controller (CAPITAL's general ledger) then this table is superseded by the General ledger's chart of accounts.

Definition of an Expense

CAPITAL's definition of an "expense" is a generally recurring overhead or operating cost. Typical examples include rent, telephone, stationary, bank fees, advertising, wages, etc.

Examples of "costs" that aren't expenses according to CAPITAL's definition include:

Purchases of Stock

Purchases directly relate to cost of sales. A stock purchase is not an expense when you intend to sell the stock. In other words, you have translated one asset (cash) for another (inventory). Since it is usual to try to sell stock for at least what you paid for it, nothing is "lost" so no expense is said to have occurred. Note that according to this definition, certain transactions that reduce the balance in your bank account are not necessarily "expenses" in the technical sense of the word.

Director's Loans

Loans or drawings affect capital accounts or the assets of a company. Like dividends, they are not overheads in the traditional accounting sense. For example, if a company director injects cash into a business it would be silly to consider this extra money as any kind of operating "profit". After all, it is expected that the company will pay the director back. Likewise, when a pay back or loan occurs, this should not be shown as an "expense." Because the money was not initially shown as income, you cannot double-dip and later on show it as an expense.

Tax Paid on Operating Profit

Tax is a special case because while most of us would consider it to be an expense, it can usually only be calculated after all other expenses have been considered. Therefore it is not included as a "normal" expense because tax paid on company profits is not itself tax deductible.

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