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Statement of profit and loss how to know which goes in each expense type?

topcattopcat Trusted RegularRegistered Posts: 452
For example in the question i am working through in administration expenses irrecoverable debts has been placed :001_unsure: is there anywhere which details what goes into each expense category? i don't understand how irrecoverable debts can go in this part why not finical costs ?

Comments

  • topcattopcat Trusted Regular Registered Posts: 452
    Not to worry on this one now think about sussed it :thumbup1:
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Hi,

    Financial costs are essentially the costs of borrowing funds - e.g. bank loan interest, overdraft charges, finance lease interest and such like. These are useful to a user of the accounts who may want to undertake ratio analysis, such as work out interest cover (how many times profit will cover interest payments). Therefore that is why financial costs are shown separately within the financial statements.

    Administrative expenses are the day-to-day running costs of the company such as payroll costs, heat and light, repairs and maintenance, telephone bills and such like. Bad debts are not financial costs, they are an expense to the company for a customer being unable to pay their debts - financial costs relate to the borrowings of a company.

    I hope that helps.

    Best wishes
    Steve
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