Indirect costs - what applies to them? Enterprise Accounting

An organization’s expenses represent a decrease in economic benefits due to disposal of assets. The latter may be cash or other property. The expenses of the organization are also the occurrence of obligations, which leads to a decrease in the capital of the enterprise (except for the reduction of deposits by the decision of the founders).

Classification

Depending on the implementation (production) volumes allocate variable and fixed costs. The former vary in proportion to the number of manufactured products, services provided, work performed. Fixed costs exist regardless of production volumes. This category includes some taxes, security payments, depreciation, rental payments, management salaries, and so on. Costs can be overhead or indirect. This classification is carried out in relation to the costs of the process. Depending on the level of aggregation, costs can be singleton or complex. There are also direct and indirect production costs.

Tax Code

In Art. 271-273 ch. 25 for entities paying income tax, there are two options for determining income and expenses:

1. Accrual method. It is considered universal and can be used in all cases.
2. Cash method. This option is convenient in some cases, but has its limitations.

According to Art. 318, paragraph 1 of the Tax Code, payers using the accrual method are required to divide the costs into indirect and direct. This is due to various conditions for their recognition in tax reporting. Let us further consider in more detail what indirect costs are and what applies to them.

general characteristics

Direct costs relate to the expenses of the current tax (reporting) period as the sale of goods / work / services. They are included in the cost of production under Art. 319 Tax Code. Otherwise, indirect costs are determined. What applies to them? They represent a set of costs related to the technological process, which is economically impractical or cannot be attributed directly to certain types of products. The distribution of indirect costs is carried out in full in the same tax period in which they arose. This means that even if there was no sale, these costs reduce taxable profit for a given time period.

Indirect costs: what applies to them?

These costs are divided into two main categories:

1. General business . They are not directly related to the technological cycle of the enterprise. Accounting indirect costs in this case is carried out on the account. 26. Such costs relate to process control.
2. General production . These include general shop expenses for maintenance, organization and process control. Accounting entries are made to the account. 25.

Each of these categories, in turn, has a classification.

The cost of operating and maintaining the equipment

They represent indirect costs. What applies to them? This category includes costs for:

• Depreciation of equipment and vehicles.
• Maintenance and car care.
• Energy for equipment.
• Salaries and social charges for employees serving machines.
• The movement of materials, finished products, semi-finished products within the enterprise.
• Services of auxiliary workshops for servicing workplaces and machines.
• Other operations related to equipment.
  

General shop costs

These indirect costs relate to process control. They include the costs associated with:

1. Preparation and organization of production operations.
2. The content of the management apparatus of technological units.
3. Depreciation of structures, buildings, production equipment.
4. Providing normal working conditions.
5. Maintenance and repair of structures, equipment, buildings.
6. Training and career guidance.

General expenses

This category includes:

1. Administrative expenses.
2. Labor costs. It is, in particular, about the recruitment, selection, training of managers, training, retraining for advanced training.
3. Technological management costs.
4. Payment for services received from external organizations.
5. Production management costs.
6. Maintenance of buildings, equipment, facilities.
7. The costs of managing the procurement, procurement, financial and marketing activities.
8. Mandatory taxes, fees, deductions and payments in accordance with the procedure provided for in the legislation.

A specific feature of general economic expenses is the fact that they are unchanged within the framework of a large-scale base. They can be adjusted with governing decisions. The extent of their coverage can be changed by sales volume.

Large base

In management analysis, it should be understood as a specific interval of sales / production volume, within which expenses have a pronounced behavior. For example, the enterprise has at its disposal a 10 machine tool park. 1 million products a year are produced annually. Depreciation on fixed assets is 500 thousand rubles. Management decided to double production. For this, an additional 10 machines were commissioned. The scale base up to this point was 0-1 million products. After an increase in the machine stock, it became 1-2 million.

Overhead and core costs

This classification is carried out by purpose of costs. Overhead refers to the costs associated with the management of the enterprise. The main costs are called resources of all kinds. This is in particular:

1. Items of labor in the form of basic materials, raw materials, purchased semi-finished products.
2. Depreciation of fixed assets.
3. Salary of workers employed in the technological (main) process.

The occurrence of these costs is associated with the release of products. These costs at any enterprise form a significant part of the costs. Overhead costs arise in the implementation of leadership functions. By their purpose, role and nature, they differ significantly from production tasks. Such costs usually relate to the organization of the enterprise. They are included in accounting entries using the method of transferring costs to a medium.

Cost Sharing Procedure

The determination of which costs are indirect and which are direct is carried out depending on the specifics of the enterprise. A firm, in particular, may:

1. Release products, perform work.
2. To provide services.
3. To carry out the sale of products.
   

For commercial enterprises, the distribution of indirect costs and direct costs is carried out regardless of the method of determining income tax. As mentioned above, this can be an accrual method or a cash settlement option. Direct costs include:

1. The cost of delivering products to the consumer’s warehouse, if they are not included in the price of the goods.
2. The cost of acquiring products that are sold in the tax period.

Direct costs are included in the calculation during the sale of products. All other expenses, with the exception of non-operating expenses, are classified as indirect. These costs reduce sales revenue this month. Direct costs are written off as sales of purchased products in the cost of which they are included. Indirect costs are taken into account when calculating income tax.

Companies engaged in the release of goods

For manufacturing companies, a list of direct costs is set out in Art. 318, paragraph 1 of the Tax Code. This category includes costs for:

1. The acquisition of materials and raw materials used in the production of products or the performance of work, components used in the installation, semi-finished products subjected to additional processing.
2. The salary of employees involved in the technological process, the calculation of contributions for compulsory (medical and social) insurance and against occupational diseases and accidents.
3. Depreciation on fixed assets involved in the release of goods.

All other expenses, except non-operating expenses, are indirect.

Service Providers

For such companies, the division into direct and indirect costs can be carried out in the same way as for production. However, in the rules for recognizing costs as one or the other, there is a significant difference. A service should be understood as an activity, the result of which has no material expression. It is realized and consumed in the course of implementation. In this regard, service companies are not required to allocate direct costs between the expenses of the current period and the price of services that were not accepted by customers at the end of the period. This is stated in the letter of the Ministry of Finance of June 15, 2011. All expenses (both indirect and direct) such enterprises can recognize in the current period. This procedure must be consolidated in the financial policy of the company.

Lack of profit

If no income was received during the reporting period, then the company can recognize only indirect costs. Direct costs included in the surplus of unsold products cannot be used in profit calculations. If the company has not sold anything, then, accordingly, it has no direct costs. As for indirect costs, they are not tied to the proceeds received and cannot be taken into account in the current period. At the same time, if a particular cost does not bring direct income, this does not mean that it is unreasonable. It is enough that it was necessary for the implementation of activities, the result of which will be profit. Indirect costs, therefore, can be taken into account in reducing the tax base even when revenue has not yet arrived. This refers to income in the current period.

1C: indirect costs

The methods for determining costs in tax documentation are described in the appropriate register. The user must independently indicate the list of direct costs. The program interprets everything that will not be indicated in this register as indirect costs. The company confirms direct costs in its financial policy. Register the list, therefore, it is advisable through the appropriate tab. To do this, go to the "Income Tax". Then you need to click on "Specify a list (list) of direct costs." If the information register does not contain entries, the program will offer to enter them automatically. Each paragraph in it is presented as a condition for recognizing direct costs. The actual separation of costs in tax reporting is carried out at the end of the month by a regulatory document that closes accounting accounts (26, 25, 23, 20).

Stages of cost recognition in the program

Consider how the document closing the accounting accounts will “reason” in order to divide the costs into indirect or direct. The following stages can be simplified:

1. For the current period (for example, March 2012) for the company in the register "Posting Journal" the document searches for all records of a certain type.
2. Among the items found for subsequent analysis are selected those whose date is not earlier than in the register template "Methods for determining indirect and direct costs in NU (tax accounting)".
3. If the requisite “Unit” is not specified in the template, then the records specified in any unit are considered.
4. If the "Cost Item" is not completed, this does not mean that any such items will be considered. Only those with the value “Other costs” in the line “Type of expense” are taken into account.

If the entry in the financial statements meets the above conditions, the amount will be allocated to direct costs. If an expense is detected in accounting for which there is no suitable template in the register, then in NU it will be recognized as indirect. His program will debit the corresponding subsch to the debit. cf. 90.08.

Important point

It should be understood that prior to the closing date of the month, the costs of the enterprise for production are not shared. According to the settings of the chart of accounts, they, as costs, are reflected at the time of recording the business transaction in the accounting and tax records. In addition, there is another important point. It should be understood at what settings these or other postings appear in the control unit and control unit. The status of the “direct costing” checkbox will affect the compilation of postings exclusively in accounting at the close of the month. This position in no way relates to OU. In tax accounting, costs of expenses or management expenses are written off depending on their nature. Direct costs are transferred at the end of the month to the debit of the account. 90.02.1, fixing the revenue from activities with the main taxation system. Indirect costs are directly attributed to the debit account. 08/08/1.

Conclusion

The exact list of direct costs related to sales and production, the company determines independently. This list should be included in the financial policy of the company. The distribution of costs is carried out taking into account the specifics of the industry and the process. The formation of the list of costs should have an economic justification. Indirect costs can only be recognized as those that cannot be attributed to direct costs for objective reasons. For example, the costs of materials and raw materials are included in the cost of products. Such costs are always direct and cannot be indirect.