In part 4 of these series regarding the Chart of Accounts setup, I will delve into thinking about recognizing Overhead Expenses in your Chart of Accounts.
Overhead costs, which are sometimes referred to as General Administrative or Indirect Costs, can be fixed in nature, such as rent and insurance, or can be purchases that have nothing to do with the actual products or services you are selling to customers but may still be tax deductible for your business because these type of purchases can be for the benefit of the business.
So, some of the more common types of Overhead Expenses that a small business will incur for a possible indirect benefit will be the following:
- Your business probably needs to advertise so potential customers will know you are offering products and services.
- Office Supplies
- You need basic in-house supplies so personnel will have the tools necessary to perform daily administrative type of tasks.
- Perhaps you need to travel to different geographic places outside of your city for various purposes that will benefit your business later on.
- Legal and Accounting
- You may need to retain professional services for legal, accounting and consulting matters.
- Tools and Equipment
- These are purchased either for in-house usage or perhaps to assist with all of your customer jobs out in the field.
- Rent and Storage
Overhead expenses can be dangerous because these are not tied in directly to your sales in most cases, thus these type of expenses can become disregarded and thus outside of ownership budgets and planning.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.