Every expense a small business pays lands in a category, and the category list is the most useful structure the owner never designs on purpose. Too few categories and the month tells you nothing; too many and nobody files consistently. This page is for the small business owner setting up or tidying the expense categories they record against: the types of expenses by their nature, a working category list, how the accountant's categories map onto it, and where the awkward ones go. The business expense spreadsheet on this site lays out a month against this list.
Types by nature
Cost of goods or materials, the direct cost of what is sold. Payroll and contractors. Occupancy: rent, utilities, insurance on the premises. Vehicle and travel: mileage, fares, lodging, per diem. Marketing and advertising. Software and subscriptions. Professional fees: legal, accounting, consulting. Office and supplies. Equipment and capital purchases, kept apart because they are spread over years. Bank and card fees, interest. Taxes and licenses. Miscellaneous, kept small. Most businesses can file every expense into one of those without argument.
A working category list for a small business
Fewer than twenty categories, each with a one-line rule for what goes in it, written down where everyone who spends can see it. The categories should be the ones the owner wants to read at month end and the ones the accountant needs at year end, which are usually the same list at two levels of detail. The spreadsheet on this site ships with a list in this shape that can be renamed.
Where the awkward ones go, from dues and subscriptions to professional expenses
Dues and subscriptions: professional memberships, trade associations and periodicals in their own line, software subscriptions under software expense so the growing stack is visible. Marketing expenses: advertising, agency fees, sponsorships, promotional items, the website's running costs, all together so the marketing total is readable. Professional expenses: legal, accounting, consulting and coaching fees in one line; an employee's own professional development, a course or a certification, goes to training. Meals and entertainment in their own line, because they are treated differently for tax under 26 U.S.C. 274(n) and the accountant will need them separated.
How accounting expenses categories map
The accountant's chart of accounts is the same idea with more lines and formal names. The owner's list should map onto it one to many: each of the owner's categories rolls into exactly one of the accountant's, and none straddles two. Agree the mapping once with the accountant and the year-end handover becomes a summary rather than a sort.
Reimbursed expenses land in the same categories
A team member's claim is filed under the category of what was bought, not under reimbursements. The claim form should ask for the category from the same list, so the month's figures are complete whoever paid. The expense report template on this site carries the category per line; PerDiemDesk Pro, at $4 per month for the whole team, keeps every claim against it.
Questions people ask about types of expenses
How many expense categories for small business are enough?
Usually under twenty, each with a written rule. Enough to read the month; few enough that everyone files the same way.
Is software expense a subscription or an asset?
Monthly and annual subscriptions are expenses; software bought outright with a multi-year life may be a capital purchase. Record which and let the accountant apply the threshold.
Where do meals go in the types of expenses?
In their own line, apart from travel and supplies, because their deduction is limited and the accountant needs them separated.