At a Glance
An expense is a cost that a business incurs to generate sales. Pretty straightforward, right?
Expenses are deductible from revenue (sales) before arriving at the taxable business income.
Business expenses can be divided into operating and non-operating expenses. Operating expenses directly relate to the main activities of a business such as cost of materials and rent.
Non-operating expenses, on the other hand, are indirect costs such as interest on loans, bank charges, and more.
Sample Expenses List
A business made X sales in November 2020. During the month, the business had to incur the following expenses to be able to generate revenue:
- Salaries and wages $25,000
- Rent $1,800
- Cost of Goods $50,000
- Office Stationary and Equipment $1,000
- Uncategorized expenses $800
Total Expenses for the month: $78,600
Note: Business will have different types of expenses but these should serve as a guide to some of the acceptable business expenses. Acceptable here means that the Canada Revenue Agency (CRA) can allow you to deduct them from your business income to reduce your tax burden.
What expenses mean for your business
Apart from helping you generate your business revenue, expenses serve as reduction tools for your income taxes. Before your income is taxed, the CRA allows you to deduct some business expenses, such as the ones in the example above.
However, not not all expenses can be deducted from your business income; for example, your personal shopping expenses cannot be subtracted from your business income. Similarly, certain business expenses including lobbying costs as well as company fines and penalties are not deductible from your business revenue.
In case you're not so sure about an item of expenditure, talk to your accountant to make sure that only acceptable expenses get to determine your taxable income. Otherwise, you might be flagged by the CRA for fraud.