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Accounting Allah shmoop expenses Okay Once again let's go back

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to our income statement for our little lemonade business This

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thing right here and peruse it again get fresh like

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the lemonade Alright this statement is seriously anemic It omits

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a ton of things that in real life you have

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to pay for when you run a real business lawyer

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fees state unemployment fees insurance legal things more lawyers and

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on and on and on But for now we're just

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keeping it simple The focus here yes Fixed versus variable

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expenses Yeah Expenses break down into two key categories As

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you run a business The first flavor is a fixed

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expense It's set stable It doesn't move its a fixed

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in place you know like Uncle Morty who moved into

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the guest room four years ago and shows no signs

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of seeking an alternative abode When you build the sign

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it for your lemonade stand the stand itself the counter

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behind it the stools people sit on while they sip

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That's all fixed It's a set price You pay it

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generally a once and then you're done That's a single

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fixed expense which will focus on here There exists also

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a fixed recurring expense I Ian expense you pay hey

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in the same amount every month and always cost the

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same amount So you're never surprised about how much you're

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spending We're talking about things like the electric bill car

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payments building rent insurance you know stuff like that But

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the focus here is one time fixed expenses and how

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you recognize those expenses on your income statement and balance

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sheet So here's a tricky one for you If you

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spend a hundred bucks on a stool how much did

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it cost Good one Well for accounting nerds anyway it's

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a good one Answer a dot one hundred bucks Answer

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Be before or after tax Extra point for this one

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All right The stool is obviously a business expense and

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it's fully deductible But how How is it deductible Can

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you deduct the full hundred bucks as soon as you've

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committed a p A for it Well if the stool

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will last five years and then be worth nothing then

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well isn't it really twenty bucks a year Roughly What

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if the stool is worth twenty dollars after five years

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and then you sell It is used on eBay Well

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then you don't appreciate the whole hundred dollars You just

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appreciate eighty of it or sixteen dollars a year for

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five years Yeah that's how it works Lots of other

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ways to think about expensing and this expense Okay so

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how much did this stool cost Answer C Per what

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All right Per glass Sold from the stand for week

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per customer but yeah Alright At another point there let's

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say you paid a hundred dollars for that stool than

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in its lifetime It on Lee sat but for one

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hundred paying customer that's a dollar a butt And each

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but or its owner paid fifty cents per cheek for

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the eliminate So that hundred dollars was a lot to

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pay for that stool Why was the stool to fancy

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No it was expensive on a relative basis because he

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had so few customers actually use it If you'd had

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ten thousand customers sit on that stool over the course

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of five years Well then per customer it cost a

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penny And if on average each customer bought two drinks

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well it'd be half a penny a cup and that's

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point five percent in stool cost per cup Yeah cheap

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super cheap The big takeaway here is that the stool

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is fixed It's a fixed costs If a ton of

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people use it or only a few people use it

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One hundred dollars you spent to buy that stool was

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set and fixed No variability Which leads us to our

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next category Yes variable expenses All right what are they

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Anything that varies like the cups The lemonade itself there

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Variable mostly but you don't buy cups one at a

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time You buy them in boxes of a thousand To

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save money buy a volume discount you get from your

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good old friends there Hosko So there are variable but

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a thousand cups at a time If the cups cost

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you a dime than the unit variable here is that

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one hundred dollars box of cups are employees of variable

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or a fixed cost Well both actually or at least

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some employees operate That way I'll think about a sales

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representative selling gigabit secure routers Toe banks She gets a

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modest base salary maybe only two grand a month but

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then she gets ten percent of whatever she sells If

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she has a big year in cells three million dollars

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worth of routers than wow three hundred thousand dollars in

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commissions for that year's work That's her variable cost to

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the company and you'd also not be able to forget

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the fixed recurring cost of her salary of twenty four

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Grand Rite is insurance variable No not usually You buy

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insurance based on a number of factors but once you

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buy it it's fixed But it Rikers as a charge

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month after month It's a monthly fixed cost but it's

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you know recurring They're like the costs of leasing a

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building All right What about taxes Are they variable Yes

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very variable They change every year based on how profitable

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or not you are But once you subtract all these

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expenses from your revenues and you have profits hopefully and

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it's the job of companies to produce profits right That's

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why shareholders invested a dollar in order to get more

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than a dollar backto Of all the income statement line

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items profits are the squishy ist They could be cajoled

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manipulated fake stretched and shrunk in nineteen thousand different ways

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So whenever you hear a profits number be skeptical And

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uh well it can't hurt to always keep a couple 00:05:04.257 --> [endTime] of accounting nerds Andy

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