TABLA DE SABERES Y DISEÑO CURRICULAR POR GRADOS 1. TABLA DE SABERES DE INGLES

Term Definition Explanation

Revenue The gross increase in cash, receivables and other assets that arise in the ordinary course business

Revenue could include:

 sales of goods by a retailer (merchandise sales)

 tuition fees by educational institutions

 accounting fees by an accounting firms (rendering of services)

 lease income by a property developer

 interest earned by banks

 dividends received by investment firms.

for the existence of the business—the sale of goods or provision of services for which the customers pays. Gains Represent other

items considered as income but that do not arise in the ordinary course of business

Gains may be sales from the disposal of resources other than products. This includes:

 gain on the sale of investments

 gain on the sale of property, plant and equipment

 gains on the sale of intangible assets.

They may also be foreign exchange gains (that is, gains resulting from foreign currency exchange transactions and translations).

The key difference between revenue and gains is that revenues are earned from the regular activities of the business (its primary reason for existence) and gains are earned from a peripheral (non-core) activity of the business.

Income The increase in economic benefit for the owners of a business that arises during an

accounting period

The economic benefit may result in an increase in assets (cash/receivables) or a decrease in liabilities (payables, loans) but always with a corresponding increase in owner’s equity.

Income in accounting means the amount left over after revenue has been reduced by the expenses incurred in earning that revenue (that is, the cost of doing business). Income is the same as net profit. Gross

profit

The profit before indirect costs like overheads have been deducted

Gross profit is the amount left over from the revenue after the direct costs of making a product or providing a service have been deducted.

Net profit The amount left over after

deducting indirect costs from gross profit

Indirect costs include such expenses as depreciation, distribution, selling and administrative costs,

taxation, and interest payments.

WHAT ARE EXPENSES IN ACCOUNTING?

An expense in accounting is the money spent or cost incurred in an entity’s efforts to generate revenue. Expenses represent the cost of doing business where doing business is the sum total of the activities directed towards making a profit.

BACKGROUND TO EXPENSES IN ACCOUNTING

It is important to firstly be quite clear about the difference between a cost and an expense. This is because, as explained below, these elements have different meanings in accounting.

 A cost is a monetary measure of the resources that have been sacrificed to acquire an asset.

 An expense is that part of the cost that has expired and been used up by activities directed at generating revenue.

While all expenses are costs, not all costs are expenses.

KeyFACTS

Expenses can take the form of:

 cash payments (such as wages and salaries, rent, advertising)

 an expired portion of an asset (for example, calculated depreciation/amortisation)

 a reduction in revenue (such as bad debts).

Expenses are summarised and included in the Income Statement as deductions from the revenue. Revenue minus expenses calculates the net profit for the business for a given period.

(Note: Cash payments do not always mean that an expense has occurred. For example, a business might pay $10,000 to the bank to reduce its bank loan. This payment will reduce the cash holding of the business but it is not an expense. It is rather a reduction in the amount of the loan and liability the business has to the bank.)

In double-entry bookkeeping, expenses are one of the five key account groups by which financial transactions can be categorised. The other four account groups are assets, liabilities, owner’s equity and revenue.

Expenses, under the double-entry bookkeeping system debit/credit rules, are recorded as:

 a debit to the specific expense account

 a corresponding credit entry as either a decrease in an asset (exhausting something of economic value, usually cash) or an increase in a liability (creating an obligation to pay for goods or services used in the generation of revenue, usually accounts payable).

(Note: The purchase of such things as vehicles, equipment or buildings is not an expense. These purchases are known as capital expenditure items and are treated initially as an asset to be expensed over its useful life—that is, by depreciation/amortisation.)

Expenses are recorded in the ‘books of a business’ according to the

method/basis of accounting chosen by the business: cash accounting or accrual accounting (also called cash basis and accrual basis, respectively).

 Under accrual accounting: The expense will be recorded in the

accounting system at the point when a legal obligation has been created. This is usually at the date of goods shipped/received or the date that the service was performed.

 Under cash accounting: The recording of the expense is delayed until the

cash payment is made (for example, an electricity bill for the month of April but paid in May will be recorded as an electricity expense in April under accrual accounting but recorded as an electricity expense in May under cash accounting).

ACCRUAL ACCOUNTING AND THE MATCHING PRINCIPLE

Accrual accounting is built on the matching principle in accounting. The matching principle tries to accurately report the profits for each accounting period. This requires matching the revenue for a given period directly with the expenses incurred in earning that revenue in the same period.

For example, under accrual accounting, sales commission expense will appear on the Income Statement in the same period that the related sales are reported, regardless of when the commission is actually paid.

EXPENSES AND TAX LAW

Tax law can also influence the type and amount of expenses that can be claimed as a deduction when determining the income tax payable for a business.

For example, while legal expenses may be paid by a business, not all legal expenses are deductible expenses under tax law. There are many other examples of business-related expenses that may not qualify under tax law as deductible expenses. Accountants and tax agents usually have the job of sifting through the business expenses to remove the expenses that cannot be claimed, before lodging a tax return or report.

Each country sets its own tax laws. However, there are some common elements when deciding the question: Which expenses qualify as a tax deduction?

Common elements include the fact that the expenses must be: • part of the ordinary course of doing business

• necessary for the development of the business • paid or incurred during the taxable year

• not paid before the start of a business or in creating it (these would be treated as capital expenditure costs)

• be a trade or business activity that is continuous, regular and one where profit is the primary motive.

WHAT ARE EXPENSE CLASSIFICATIONS AND FUNCTIONS IN ACCOUNTING? By applying expense classifications and functions to financial reports, the

decision maker can identify:

 the real, primary and underlining profitability of the business

 functional areas where expenses are either within or outside of predetermined norms or targets for the business.

BACKGROUND TO EXPENSES IN ACCOUNTING

The purpose of accounting, as explained earlier, is to provide meaningful

financial information that can be used to make decisions about the management and performance of a business.

Two financial statements provide this key financial information: the Income Statement (Statement of Financial Performance) and the Balance Sheet (Statement of Financial Position).

 The Balance Sheet provides details about the financial strength or net worth of the business by presenting the assets, liabilities and owner’s equity at a point in time.

 The Income Statement provides details about the sustainability or

profitability of the business by presenting the revenue and expenses for a past accounting period.

EXPENSES BY CLASSIFICATION AND FUNCTION

Expenses are divided into two main classifications: operating and non-operating. Operating expenses are associated with the main activity of the business

(primary activities) while expenses associated with a peripheral activity of a business are classified as non-operating (secondary activities).

For example, interest expense for the majority of businesses is regarded as a non-operating expense because it involves the finance function of the business, rather than the primary activities of buying/producing and selling. Non-operating expenses may also be recorded as other expenses.

Expenses can be further sub-classified according to their function; that is, reporting expenses according to the activity for which the expenses were incurred. Each business will group their expenses by the functions that are the most relevant to them.

Some businesses may group Employee expenses, Vehicle expenses or Occupancy expenses depending on their significance to the business.

Generic classifications for all businesses may include those listed in Table 7.

Table 7 Generic expense classifications

Type of expense Description