1st Bac - Classification of Costs and Expenses

Classification criteria of costs and expenses

o   When the entrepreneur acquires goods and services related to the production area and pays for them, a cost has incurred. On the other hand, when the entrepreneur has paid for administrative, commercial or financial aspect of the business, then an expense has incurred.


·      Fixed Cost: It’s a payment the entrepreneur makes which is always the same, despite of the amount produced of the good or service. For example: rent.


·      Variable Cost: The total changes depending on the amount of good or services produced. For example: In a bakery, the amount of flour.


·      Working Capital: When the entrepreneur knows the monetary value of costs and expenses needed for the monthly operation of the business, it is in capacity of establishing an estimated amount to the business can work normally.

     The working capital is the fuel that makes the company run on a daily basis; without working capital the entrepreneur will not be able to pay the employees, or the materials used to make the product or service.

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