7. Accounting and auditing

Iryna Sklyaruk

A post-graduate student

Taras Shevchenko National University of Kyiv, Ukraine

Essence and Classification of Enterprise Expenses

Calculation and formation of production expenses is one of the main elements of organization of the production and economic mechanism of business entities. The economically justified classification of expenses is an important prerequisite of the successful organization of costs accounting, calculation of prime costs and effective cost management. Being one of the main objects of the accounting and analysis, the expenses are an important factor for pricing the manufactured products, assessment of financial results of economic activity of enterprises and the level of production efficiency.

As for the economic content, the enterprise expenses is a set of expenses of living and embodied labour for activities of business entities. As for the natural and material structure, it is the consumed part of material and financial resources, as well as labour forces.

There are two main approaches to estimation of expenses – economic and accounting. In the accounting terms the expenses are the costs of the resources actually spent on manufacturing of a certain amount of products at their acquisition prices. Accounting costs consist of:

- direct costs (raw materials, materials, expenses for remuneration of workers involved in the production process, energy costs, etc.);

- indirect costs (depreciation, salaries for the management personnel, etc.)

The adoption by the business entity the managerial decisions on the practicality of further activities requires including and substantiating the information on economic expenses. In terms of economy, expenses are based on the fact of uncommonness of resources and their possible alternative use. The economic expenses of the resource used in products manufacture are equal to its value which is the best of all possible usage options. There are the following economic expenses:

- explicit (alternative costs, which are direct payments to suppliers of production factors);

- implicit (alternative costs, which belong to business entity).

Unlike the explicit costs, implicit costs are not stipulated by contracts, and therefore are considered short-received. They are not presented in financial reports. They are taken into account in substantiating and making managerial decisions.

Classification of expenses has a great importance in the management of expenses and, first of all, in the calculation of the products’ prime costs.

Classification of expenses is the scientifically-based grouping of costs by specific homogeneous characteristics for accounting, analysis, control, planning and making managerial decisions on the production process.

Production costs are classified in terms of various criteria. The need in different classifications of expenses, the use of different methods of their collection and allocation is growing with complicacy of the economic activity of the enterprise. It is a prerequisite for the successful organization of planning, accounting, control, analysis and effective cost management. The peculiarities of the classification of expenditures are determined by the production technology and scale, the variety of expenses themselves, etc. The most wide-spread criteria for the costs classification and types are presented in Table 1.

Table 1

Enterprise Expenses Classification

No	Classification Criteria	Types of Expenses	Characteristic
1.	Responsibility centre (place of arising expenses)	Main production/productive work	Are directly involved in the production of products
		Auxiliary production	Maintenance of workshops of the main production
2.	Specific types of expenses	The nomenclature of expense items, which are fixed by the enterprise considering the industry specific activities
3.	Economic content of expenses	Economic elements	Material costs, labour costs, deductions for social needs depreciation, etc
		Calculation items	Direct material costs, direct labour costs, other direct costs, general production costs
4.	Way to transfer the value on the products	Direct	Are directly related to a particular object of expenses
		Indirect	Are not directly related to the particular object of expenses
5.	The impact rate of the production volume on the level of expenditures	Variables	Their absolute value grows with the increase of the production output volume and decreases with its decrease
		Constants	Their absolute value does not change with the increase of the production volume
6.	Formation period	Current	The frequency of which is less than one month
		Future periods	Take (took) place during the current or previous reporting periods, but are related to the future reporting periods
		Previous periods	Took place during the previous reporting periods

Thus, the definition and classification of expenses has a practical value for calculation of prime costs of products, determination of prices for the manufactured goods, etc. Grouping of expenses is important not only for calculation of prime costs, but also for establishing a specific balance between them with an aim of mutual control and coordination. This coordination is possible only in case of availability of the economically justified classification of expenditures for certain groups, which is also important for the analysis of prime costs, establishing and assessing the factors of their formation and reduction.

Literature:

1. O. Machulka. Accounting and Costs Analysis: Managerial Aspect // Accounting and Auditing. – 2008. - №8. – page 30-34.

2. А.M. Turylo. Enterprise Expenses Management: Workbook. / А.M. Turylo, Y.B. Kravchuk, А.A. Turylo. – К.: Centre of educational literature, 2006. – 120p.

3. Y. S. Tsal-Tsalko. Enterprise Expenses: workbook. / Y.S. Tsal-Tsalko. — Zhytomyr: ZhSTU, 2004. — 459 p.