An expense is a cost incurred in the process of earning revenue. Expenses reduce your profit and are recorded on the profit and loss statement in the period they are incurred.
Expenses are the costs of doing business. They are recorded on the profit and loss statement and reduce your net profit (and therefore your taxable income). Expenses are categorised into several types: cost of goods sold (direct costs of producing your products or services), operating expenses (overhead costs like rent, utilities, salaries, insurance and marketing), interest expenses (cost of borrowed money) and tax expenses. Good expense management requires accurate categorisation - putting each expense into the right account in your chart of accounts. This enables meaningful reporting, proper tax treatment and informed decision-making. Common expense categories include rent, utilities, wages, insurance, professional fees, marketing, travel, office supplies, software subscriptions and depreciation. SortBooks suggests the right account for expenses sitting in catch-all accounts, learning from your own past coding, and writes the change to Xero once you approve it.
SortBooks helps with the bookkeeping behind expense by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing expense by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Revenue (also called sales, income or turnover) is the total amount earned from selling goods or services before any expenses are deducted. It is the top line of the P&L.
The P&L (also called the income statement) shows your business revenue, expenses and resulting profit or loss over a specific period.
Operating expenses are the day-to-day costs of running your business, excluding COGS. They include rent, wages, utilities, marketing, insurance and administrative costs.
COGS represents the direct costs of producing or purchasing the goods your business sells. It includes raw materials, direct labour and manufacturing overhead but not selling or administrative expenses.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.