How to Estimate expenses

To estimate expenses is helpful for making estimated income statement for getting the idea of net income for any month or year. It is also useful if you did not record all the transaction on daily basis. Correct estimation of revenue expenses will give you the correct information of your net profit or net loss but for calculating the estimates of expenses you need to know many things. We can includes all these things in following steps:

1. Difference Between Fixed Expenses and Variable Expenses 

For estimation of expenses, you need to know the difference between fixed expenses and variable expenses. Fixed expenses are those which will be fix if there will be any change in production or sales. Variable expenses will be different if production or sales will decrease or increase. For example, your depreciation will be fixed with  your given rate of depreciation in case if you did not sell your fixed asset. In case of salesman's commission, it depends on the his sold goods. If he will sell more goods, we will give more commission. With this, our expenses will increase.

2. Know Your Main Expenses 

First of make the list of your all expense. It may be mobile expenses, petrol charges, bank charges, Internet charges, rent, electricity, stationery and others. For example, you consume Rs. 5000 per month petrol, it means your petrol expenses will be Rs. 60,000 per year. If you consume Rs. 1,000 mobile charges, it means you mobile charges for one year will be Rs. 12,000. Like this, you can convert every expenses in larger or smaller period.

3. Technical Estimations 

For estimations of expenses, you should know also measurement of each thing. For example, electricity bill will be on the basis of our consumption of electricity in units. So, we should know the measurement of these units. If we are making building on the basis of contract, its labour cost will be on the basis of Rs. 100 per square foot area. Like this, there may be large number of technical estimations which you should learn.

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Accounting Education: How to Estimate expenses
How to Estimate expenses
Accounting Education
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