Business expense

“ Under petitioner's interpretation, the fundamental question whether an expense is properly characterized as a capital outlay which has to be amortized or instead as an ordinary business expense subject to immediate deduction would be answered by simple reference to accounting procedures in the industry. ”

“ The cost of advertising, the cost of colonization, and canvassing by agents engaged 281in building up the business tributary to the corporation, the cost of developing an efficient business organization and an efficient plant—every possible item of developing the business finds accurate record in the development expense deduced from the accounting records as outlined. ”

“ Such expenses need not relate directly to the production of income for the business. It is enough that the expense, if 'ordinary and necessary,' is directly connected with or proximately results from the conduct of the business. ”

“ Every effort is offset by the cost of that endeavor, and unless the result of the effort be more than its cost, its aim, viz., the increase of net worth, is not accomplished.
Relation between Profit and Loss and Financial Elements.—These income-producing efforts are the agencies that bring about the changes in the values of assets and liabilities. Expenses and costs are incurred for the purpose of securing income. Every expense or cost that is settled causes a diminution of business assets, usually of the asset cash. ”

“ General indirect labor and general expense is added to the combined total of all shop costs. In this connection it may be well to emphasize the importance of distributing every expense possible to individual shops, leaving only those items that cannot be so distributed to be added as general expense. For the ostensible purpose of reducing labor, it is the practice of some accountants to throw all expense items into one class, adding the whole as general expense. ”

“ If the business man analyzes his sources of income into several divisions the same as he does his items of expense, he will find it an easy matter to correct errors that creep in the business. He does not have to worry about those items of expense which show minus, nor about those items of receipts which show plus. ”

“ Gross profit on business done is that first profit which remains after deducting the first cost of producing the goods—in this case copper, the metal; and from this gross profit must be deducted other expenses, such as unusual development expenses, the expense of running the executive departments, interest, etc. This leaves the net profit which is available for dividends. ”

“ Accordingly, corporations oftentimes spend large sums in so-called social betterment work, and it is customary for the corporation to charge a fair rental on workmen’s dwellings. The expense in connection with such work is to be treated rather as an item of extraordinary expense just as the income from the corporation’s investment in workmen’s dwellings must be treated as income outside the regular operations of the business. The problem here is simply the determination of the proper place to show the items of expense and income in the profit and loss summary for the period. ”

“ Organization Expense. The group of expenditures explained in Chapter XXXVIII, as incident to the organization of a corporation, is recorded under the title “Organization Expenses” and is classified for purposes of the balance sheet as an asset. It is a kind of asset, however, which has no [Pg 407] tangible value and most businesses desire to consider it more in the nature of a deferred charge to operations. It is recognized that frequently intangible assets add no strength to the business. ”

“ The merchant, who pays taxes on his stock and so adds to his expense account, should not be blamed if he keeps this in mind when he fixes the selling prices of his goods.
THE RETURNS Taxes duly paid, honestly collected, and properly expended should never be regarded as a burden.
From no equal expenditure of money do the people get so much good. ”

“ Another item of expense is for advertising and for keeping the firm name prominently before the purchasing public. All these things cost money, as any wholesale merchant engaged in a business where there is sharp competition can testify. It may be thought that a firm which would have the courage to do away with all these expenses and give the money thus saved to their patrons in reduced prices and better goods, would be able to keep its trade and even gain over its competitors. ”

“ The amount of all expenses, Including interest and salaries, is ascertained, and the total net profits shall be divided between the firm and the employés sharing in the fund. The amount of the net profit to be distributed will be that proportion of the whole net profit which will correspond to the proportion of the wages paid as compared with the entire cost of production and the expense of the business. ”

“ The net difference between the income and the cost of securing the income, as indicated by the expense accounts, will represent the value added to the assets of the business, and will therefore be reflected tangibly in an increase in the value of the assets by that amount. This increase will usually be reflected either in the cash holdings or in claims against customers. ”

“ Under Appropriations, enter all disbursements voted by the Exchange Council for Athletics, Dividends, Sick in Hospital, etc. Under Fixtures should go all expenditures for permanent equipment (new) of the Exchange, and under Maintenance, all money spent for repairs, replacing of old equipment by new, and the like. In the Expense Column we carry such items as wastage, breakage, telephone and telegraph bills, fuel, light, insurance, printing and stationery, and such expendable supplies as twine, paper, etc., as are used in carrying on the business. ”

“ The economy still follows the absolute height of the expenditure. Later on when the volume of business has increased, the importance of the business expenses dwindles; increases in the expenditure totals matter little so long as the transactions and returns can be sufficiently increased. ”

“ Who will be chargeable, before the country, with "the loss and waste of establishments which have cost upwards of a million sterling—of shipping, to the amount of many millions—of a numerous and respectable class of warehouse-keepers, clerks, and superior servants, joined to three thousand labourers, and their families—of tradesmen of various descriptions, who have incurred a very great expense for the conduct of their business?" ”

“ As the young men had not capital sufficient to follow the same line of mercantile business in which he had been engaged, they were obliged to look out for a new plan of maintenance, and a great reduction of expense was the first thing requisite. ”

“ Moreover, the settled prices prevailing throughout the country allow of assured calculations and precautions as to business ventures, and permit such a ratio to be established between expenses and income, that at the end of the fiscal year a profit, not a loss, may be counted upon. ”

“ These expenses usually comprise such costs as state incorporation fees, attorney’s fees for drawing up the application and other papers, the cost of prospectuses, soliciting costs for stock subscriptions, fees paid promoters and organizers, cost of printing and issuing certificates of stock, cost of capital stock records, and similar items. These are necessary and unavoidable expenses without which the company cannot come into being. A company organized and ready to commence business is in a better position than one whose elements have not been brought into harmonious working. ”

“ Being able to buy food where it is grown, cuts down expenses to a very small amount comparatively. When I told them this, one of them acknowledged that he could see that they would have less expense, but that they would still have need of money. ‘You bind us to take all we earn in scrip or shares for our labor?’ one of them asked of me. ‘Certainly,’ I said, ‘that is the protection of the society.’ But I told them they could buy money with their scrip. ”

“ Of course I can't give exact figures, as it would be hard to get at them, because you know each mercantile enterprise, each selling shop, each sewing shop, has its own income and expense account, just as each family has its own degree of economy in incurring expenses with special proportions between their various expenditures. ”

“ Secondly, because one of the risks, or expenses, of industrial operations is the risk or expense of what are commonly called bad debts, and every saving which can be effected in this liability is a diminution of cost of production; by dispensing with an item of outlay which in no way conduces to the desired end, and which must be paid for either by the consumer of the commodity, or from the general profits of capital, according as the burthen is peculiar or general. ”

“ Among the costs of production have to be reckoned taxes, general and local. If, as in our large towns, the local rates now amount to one third of the rental or more if the employer has to pay this, not on his private dwelling only, but on his business-premises, factories, warehouses, or the like, it results that the interest on his capital must be diminished by that amount, or the amount must be taken from the wages-fund, or partly one and partly the other. ”

“ If the mean term, which we are searching for, between an infinite value and no value at all is expressed in the case of every product, by the amount of time and expense which the product cost, a poem which has cost its author thirty years of labor and an outlay of ten thousand francs in journeys, books, &c., must be paid for by the ordinary wages received by a laborer during thirty years, plus ten thousand francs indemnity for expense incurred. ”

“ To be properly remunerative to the State, as to a private individual, the price at which a commodity is sold must be sufficient to pay interest on the capital invested in the business, that is to say, to pay for the use of the property which must be used in producing the commodity, as well as to pay the more immediate cost of its production in wages and materials. ”

“ The account should be charged originally with all such items at full cost. Great care must be exercised in handling repairs and betterments to avoid an inflation of values. The distinction between capital and revenue expenditures as regards all such assets already acquired is usually so slight and uncertain as to justify the establishment of a policy of charging all these to expense. Otherwise, the ease of inflation is apparent. All new purchases should be charged at full cost to the asset. ”

“ Who would lend at 5 per cent. per annum to agriculture, to manufacturers, and to commerce, when a borrower may be found ready to pay an interest of 7 or 8 per cent.? That sort of income, which is called profit of stock, would rise then at the expense of the consumer. Consumption would be reduced by the rise in the price of produce; and the other productive services would be less in demand, less well paid. The whole nation, capitalists excepted, would be the sufferers from such a state of things. ”

“ The cost of production, prompt information as to the cost of transprotation, are legitimate subjects of inquiry and knowledge in any industry. So likewise is the production of the commodity in that industry, the aggregate surplus stock, and the prices at which the commodity has actually been sold in the usual course of business. ”

“ Of course the small number of successful merchants have to calculate upon the failures which will inevitably occur. They must discount the losses they are sure to incur through those failures—provide for them by increasing the otherwise sufficient profit of each transaction. In this way the public pays the cost of each failure. In other words, the consumer is taxed to pay the expense of ninety complete failures, and seven partial failures, in every hundred mercantile experiments. This expense aggregates scores of millions of dollars in this country alone, every year. ”

“ The law originates primarily in the fiscal conditions attaching to the heavy capital investment,—the fact, namely, that fixed charges up to a given point of saturation tend to remain constant, absolutely; but become proportionately less, therefore, as the volume of business expands. ”

“ If in estimating profits we sometimes include a return for the use of capital, it is from incomplete analysis of the forces in use, since the interest upon capital can easily be separated in all actual practice, and in most enterprises is counted as a distinct expense to be provided for in entering upon the undertaking. The profits really belong to the management of any undertaking, as return for the exertion in that management. In every-day use the term wages is applied only to the stipulated amount paid from time to time for services rendered to another. ”

“ Thus may any Gentleman, with very little trouble, apportion his Income:—and as no two Gentlemen live exactly alike, this Table will shew, by inspection only, what branch of Expense may best be curtailed, so as to afford an addition to any other branch, and still keep his whole Expenses short of his actual Revenue. ”

“ There can be no doubt, that if capital were forthcoming to execute, within the next year, all known and recognised improvements in the land of the United Kingdom which would pay at the existing prices, that is, which would increase the produce in as great or a greater ratio than the expense ”

“ A considerable factor in the high cost of living is the continuance of the excess profits tax. In establishing the selling price of its product, every business establishment sets aside a reasonable profit and then adds to it the amount that must be paid to the government. ”

“ When profits arise of necessity, they are distributed to the members of the association in proportion to the amount of business each has done. The work of the organization is conducted at as near cost as possible and profits are declared only after expenses, depreciation, interest on capital for future operations are deducted. ”