Buying Expense. The costs incurred in making purchases for the business. These may comprise the salaries of buyers and all expenses in connection with maintaining a purchasing department.
Rent. The cost for the use of premises not owned.
Plant Maintenance. The cost of upkeep, repairs, and so forth, on the plant used by the business. The cost, by purchase or manufacture, of light, heat, and power is included here.
Depreciation. The decrease in value of a fixed asset due to wear and tear, lapse of time, obsolescence, etc.
Bad Debts. The amount of outstanding accounts receivable which have proven or are judged to be uncollectible.
Sales Discounts. The cost incurred because of the financial policy of charging a customer a smaller amount than the amount of the bill, provided he pays by a given date.
Telephone, Telegraph, Stationery, Postage, Interest Cost, Commissions Paid, and so forth. These all indicate by their titles the nature of the expense or cost items.
The student should understand that expenses may be set up in very much greater detail than that indicated by the above titles. Usually the title under which record of an expense is made will indicate with sufficient clearness its character.
The Profit and Loss Summary.—As indicated in [Chapter V], the profit and loss summary shows the manner in which the net worth of the business has been changed as the result of operations of the business, as distinguished from changes brought about through withdrawal or investment of capital. Although it is really a part of the balance sheet, which shows financial condition, because of its importance it is, however, set up as a separate statement. It amplifies and fills out the record shown by the balance sheet. It is a supplementary record because it gives additional information, and is complementary to the balance sheet because it rounds out and completes the story of business life there recorded.
Just as with the balance sheet, the main problems of the profit and loss summary relate to: (1) its form; and (2) its content. After an explanation of some of the terms used in connection with the summary, these two problems will be discussed.