When expenses are not expenses, how to correctly understand the company's financial data

    In finance, there is a big difference between “spending” in the financial sense and “spending” in the household. Financiers share the concept of spending and spending money. Expenses are events that:


    1. Are a waste of money or you have obligations to pay them.
    2. Refers to the current financial period.
    3. Relate to the use of resources by the company.

    In this case, the expenditure of funds is the actual operation of debiting funds from an account or a cash register. And such a write-off may not always mean expenses (in the designated sense) for the company. For example:


    1. You gave a debt. There is a write-off, it is not an expense (you have no obligations, on the contrary, owe you), but the conversion of money into an asset is a debt that must be returned.
    2. You bought a server. Because The server is a long-term functioning unit, then the cost of it cannot be attributed only to the current financial period, so the amount of expenses for the server is not fully the cost of this period. Server costs are considered as part of the so-called. depreciation - estimates of equipment depreciation, the degree with which you “used” the server in the current period.1. You bought 10,000 units of goods, and sold 4,000. In this case, only 4,000 units of goods fall into expenses, since You used 4000 units of goods, the remaining 6000 are in stock.
    3. Your workstations were flooded with water and had to be thrown away. In this case, you will have costs, because You have written off computers, these resources are no longer available to you, although you have not yet incurred money expenses if you have not bought new computers.

    Finances unite among themselves 3 key financial reports: Profit and Losses (PM), balance, cash flow (DDS). The meaning of all the tricks described above is to present a consistent picture of the enterprise in these three reports. In the examples above, the links are as follows:


    1. When you are in debt, you will make an entry about a decrease in the amount of money, just make an entry in the balance sheet about a decrease in balances, as well as an increase in liabilities to you. In this case, the PP remains unchanged.
    2. When you bought a server, then you make an entry about the reduction of money for DDS, increase the balance by the cost of the server, reduce by the amount of money. By the end of the year, you reduce the server book value by the level of depreciation, and the amount of depreciation falls into expenses.
    3. Having bought 10,000 units of goods, you spend money on DDS, your reserves on the balance sheet grow by 10,000 units, and the money decreases, the PM does not change. After spending 4,000 units, your P & C is replenished with proceeds from the sale of 4,000 units, 4,000 units are expended, and reserves are reduced by 4,000 units.
    4. In the event of a flood, your computers that were included in the balance sheet as fixed assets will be written off, the balance will be reduced by the cost of computers, losses from property destroyed will fall into expenses. There will be no movement on DDS.

    For this reason, when analyzing an enterprise, in order not to mix everything into a heap, it is necessary to divide between current and investment activities. Your current expenses and investment expenses should be in different planes, because The concept of expenses is connected with profit and loss. And the profits and losses primarily describe your ability to generate profits from regular business activities.


    What do I mean by investment costs in the context of IT? These are purchases of equipment, servers, facilities, launches of new projects and associated costs. It is important to always clearly understand how your regular business is doing, and then evaluate what is happening in terms of your investment activity: is the project flying well and is there enough money for it. In the end, we can finance a new project not at all from the money generated by your core project, but take a loan (which, as you understand, will not be your income, but will only be reflected in the DDS and balance sheet). But a clear allocation of profits and losses of the core project will allow you not to get carried away with investments and not to miss the moment when either the investment project began to drown the entire business, or the core began to work worse, which made the investment project go hungry.

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