Costs of Goods Sold

• This item represents amounts that a business pays for goods it uses in manufacturing activities. Materials costs include charges incurred to pay for completely finished products, semi-finished items and raw materials.
  
  

Customer Discounts and Rebates

• These represent allowances that businesses grant to customers to maintain loyalty and improve market share. Companies also may grant rebates and discounts as part of specific contractual agreements, such as price reductions if clients buy more than specified quantities.
  
  

Transportation

• Transportation charges include all costs incurred in conveying merchandise from one point to another. These may relate to shipping charges from vendors' warehouses to the corporate distribution center, as well as transportation costs from the center to customers' storage facilities.
  
  

Salaries

• Compensation expenses include payments to salaried personnel, as well as temporary employees and consultants. Accountants also report overtime payments as compensation costs. Fiscal levies, such as Social Security payments and unemployment taxes, are also employee-related charges.
  
  

Insurance

• This represents sums that a firm pays to receive coverage on specific transactions or for specified events. Adequate coverage lowers the company's losses that may result from operating events, such as fraud, on-the-job accidents and business partners' defaults. Also known as counterparties, business partners include customers, vendors and lenders.
  
  

Utilities

• All organizations incur electricity, gas and water charges. Even institutions without a profit motive, such as government agencies and charities, rely on these operating necessities to manage activities.
  
  

Office Supplies

• Office supplies are items that a firm or an individual needs to engage in mundane activities, such as sending correspondence, collecting data from another party and signing business agreements. These supplies include small, expendable items such as paper clips, hole punches, binders and note pads.
  
  

Interest

• This expense represents the cost of money that a borrower must pay, in addition to the principal loan amount. Interest charges are a product of the borrower's debt pile, since loan rates are usually a percentage of the principal amount loaned.
  
  

Bad Debt

• Accountants use "bad debt" to describe amounts that a company believes it may not recover from customers. Clients may not pay for goods if they file for bankruptcy or experience temporary financial distress.
  
  

Depreciation

• Depreciation enables a company to allocate the costs of its long-term assets over several years. It is a non-cash item, meaning the firm does not pay for it as it does for other expenses. Long-term resources include equipment, buildings and production machinery.