Expenses incurred to earn the income shown under various heads as discussed below:
(a) Cost of Materials- It applies to manufacturing companies. It consists of raw materials and other materials consumed in manufacturing of goods.
(b)Purchase of Stock-in-trade- It means purchases of goods for the purpose of trading.
(c) Changes in inventories - It is the difference between opening inventory (stock) finished goods, WIP and of finished goods, WIP and stock-in-trade and closing stock-in-trade inventory.
(d)Employees benefit expenses Expenses incurred on employees towards salary, wages, leave encashment, staff welfare, etc., are shown under this head. Employees benefit expenses may be further categorised into direct and indirect expenses.
(e) Finance cost It is the expenses towards interest charges during the year on the borrowings. Only the interest cost is to be shown under this head. Other financial expenses such as bank charges are shown under “Other Expenses”.
(f) Depreciation Depreciation is the diminution in the value of fixed assets whereas amortisation is writing off the amount relating to intangible assets.
(g) Other expenses All other expenses which do not fall in the above categories are shown under other expenses. Other expenses may further be categorised into direct expenses, indirect expenses and non-operating expenses.
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