Expenses or direct costs??

monkeypuzzle47 · August 2008

For a sole trader accounts (i.e in this case a self employed childminder). How would you classify the cost of food given to the children cared for in the business and the purchase of toys and equipment. Would this come under Costs of sales (i.e direct costs) or just expenses in the final accounts?

Thanks in advance.
jennifer

blobbyh · August 2008

Since these can be directly attributed to certain revenue streams, I'd classify them as Cost of Sales.

My favourite analogy is a bike factory, where you need all the various components, frames, wheels, gears, nuts and bolts etc to directly manufacture the finished article for sale. In the childminder instance, you could compare the tins of food to the wheels while the toys are the nuts and bolts that all go towards the cost of the service being sold.

T.C. · August 2008

I have a client who runs a nursery. I claim food as a direct expense and activity toys as an expense. Larger items I would capitalise, such as expensive playhouses. Hope that helps.

monkeypuzzle47 · August 2008

thanks ever so much for your help to both of you.
regards
jennifer.

Expenses or direct costs??

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