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Direct and Indirect Expenses:

Learning Objectives:

  1. Define and explain direct and indirect expenses.

  2. What is the difference between direct and indirect expenses?

Expenses means the expired costs incurred for earning revenue of a certain accounting period. They are the cost of the goods and services used up in the process of obtaining revenue. In other words, it becomes possible to earn revenue with the help of expenses. For example, purchase of goods, wages, salaries, rent, carriage, customs duty etc. We have to incur all these expenses in order to earn revenue. Expenses are mainly divided into two categories:

  1. Direct expenses

  2. Indirect expenses

These two types of expenses are briefly discussed below:

Direct Expenses:

Expenses connected with purchases of goods are known as direct expenses. For example, freight, insurance, of goods in transit, carriage, wages, custom duty, import duty, octroi duty etc. Without incurring these expenses, it is not possible to bring the goods from the purchase point to the godown of the business. such expenses are collectively known as direct expenses.

Indirect Expenses:

All expenses other than direct expenses are assumed as indirect expenses. Such expenses have no relationship with purchase of goods. Examples of indirect expenses include rent of building, salaries to employees, legal charges, insurance of building, depreciation, printing charges etc. So

direct and indirect expenses
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Example of Trading and Profit and Loss Account and Balance Sheet




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