It is said that no income with out spending. So no body can earn any thing unless he spends some money before earning. A business firm has to spend the money for purchasing the material and the consumable items. Other than purchasing of raw material or finished goods, the firm has to spend money in different ways for operation of a business. Therefore, all operational cost in respect of the goods sold or the services rendered by a business firm during a financial year, is called as expense or expenditure. It means that all the expenses must be relating to a particular financial year. It includes all cash and outstanding expenses. The expenses are divided into two parts:-

1. Direct expenses:- means all the expenses directly relating to the product for sale. Direct expenses are called as variable expenses also.  For example:- wages for production, fuel, cartage inward expenses etc.

2. Indirect expenses:- means all the expenses which have no direct relation with the production. Indirect expenses are called as fixed expenses also. For example:- office rent, salaries to administration staff, traveling an conveyance expenses, advertisement and publicity expenses, financial expenses and other routine expenses. Indirect expenses further can be classified as follows:-

a) Administration expenses:- These expenses relate to day to day expenses to run the office. Administration expenses includes rent of office, salaries to administration staff, postage expenses, telephone expenses, electricity expenses, water expenses, printing and stationery expenses, traveling and conveyance expenses of administration staff, staff welfare expenses, vehicle maintenance expenses and other administration expenses.

b) Selling and distribution expenses:- These expenses include all expenses relating to promote the sale and delivery expenses. For example:- Salaries to sales staff, advertisement and publicity expenses, conveyance and traveling expenses of sales staff, refreshment expenses with customers, cartage outward expenses, free gifts and other sales promotion expenses,

c) Financial expenses:- These expenses are relating to management of finance. For example:- Bank charges, Bank interest on loans etc.