Whether there’s an increase or decrease in your sales or production, a fixed expense will remain the same. ![]() What is a fixed expense?Ī fixed expense (also referred to as fixed cost in accounting) is an expense that remains constant whatever your business’s level of activity is. ![]() This means that anything that decreases your net worth, with or without cash outflow, is an expense. What’s an expense?Īs defined by the International Accounting Standards Board (IASB) expenses are “decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. You usually won’t know how much revenue you’ll exactly generate until you earn it, but you know how much your fixed expenses would be even before you incur them.Īnd with that knowledge, you can plan ahead how much you should be earning so that you don’t incur a loss. Understanding your business’s fixed expenses is key to knowing what is the minimum revenue you need to generate in order to keep your business running without having to bleed out cash. ![]() These are just some examples of your business’s fixed expenses. In running a business, you’d notice that certain expenses stay the same no matter how profitable you are.Įven more, you seem to be paying these expenses at regular intervals.Įxpenses such as your office’s rent, the salaries of your salaried employees, your internet bill, the interest payments you make on your loans – these are the ones that you regularly pay every month at the same amounts (or if not, at relatively the same level).
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