Financial literacy for all – bad and good expenses


Each day, we spend or waste some money and whether we like it not we will continue to spend some money.

In accountancy, we have bad and good expenses. The good expenses are the ones; the organization can deduct from the revenue and if something is left as profit, then tax can be applied on it. On the other hand, bad expenses are not allowed to be deducted from the revenue at all. The tax laws would not allow such bad expenses to be deducted from the revenue, the organization has to bear them by itself.

We have the tax allowable expenses and non-tax allowable expenses and we also have the accounting profit and the tax profit for each organization’s financial statements filed with the Internal or Inland Revenue Service.

When the financial statements are prepared by organizations and filed with the internal or Inland Revenue Service as law requires, the financial statements are studied and reviewed by the Tax Authorities and all non-tax allowable expenses are added back to the profit, so that the profit figure will be inflated, hence more tax for the government.

I believe that, each individual and every organization does not want to part away with money without getting its corresponding worth of return.

Organizations and individuals, that want to achieve financial freedom should know the differences between bad and good expenses and spend only on good expenses or spend greatly on good expenses and very less on bad expenses, where the expenses are inevitable.

Smaller owner-managed organizations should know the differences between these and begin to spend on tax allowable expenses that could be borne by their organizations to enhance the growth of their organizations and their family at large.

The commonest and basic rule for organizations is that the expense should be whole, exclusive and necessary to the course of business of the organization. Those expenses described as such would be good expenses; the rest could be bad expenses.

For individuals, who do not have an organization that would bear their expenses for them, they should know how to spend. Spend on assets that would give more money in future rather on liabilities that would exhaust you financially now and in the future.

Some bad expenses are:

  • Donations and gifts by married men their girl friends and other non-customers
  • Expending without corresponding receipts as evidence
  • Expenses in the financial statements that are general and not specific
  • Buying items not meant for direct contribution to the course of business.
  • Giving huge loans to directors and employees when you are not a loan giving organization.
  • Buying unwanted items at home, that take away more of your money in the form of repairs and maintenance, security, etc.
  • Spending so much every day after 5pm on alcohol and night clubs.
  • Buying too many electrical gadgets at home, just inviting armed robbers.
  • Buying many different earrings, lip shines, hand-bags,necklaces,etc
  • Spend money on cigarettes and tobacco and hard drugs

Some Good Expenses are:

  • Paying children’s school fees, it’s investment
  • Buying a taxi or a bus to do business for you
  • Buying land and selling it later for more cash
  • Building hospitals, churches, schools, hotels, hostels, houses office complexes and renting them out for cash.
  • Good healthcare for family members and employees
  • Sending money to your parents at the village, they would eat good food and not go to the hospital, so no medical bills to pay.
  • Spend on all tax allowable expenses.

There are as many good expenses, bad expenses; we should always try to spend on the good expenses. © Godwin-Xavier Ayeebo, 2010

Credit: Xavier Godwin [Email: [email protected]]