RK&S SMART SOLUTIONS, INC.

EXCELLENT IDEAS, SMART SOLUTIONS

EXPENSE MANAGEMENT
Understanding Expenses In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable assets from a person or company to another person or company. This outflow of cash is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller. Technically, an expense is an event in which an asset is used up or a liability is incurred. In terms of the accounting equation, expenses reduce owners' equity. The International Accounting Standards Board defines expenses as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Another definition used in business is cash spent or cost incurred in an organization's efforts to generate revenue, representing the cost of doing business. Expenses may be in the form of actual cash payments (such as wages and salaries), a computed expired portion (depreciation) of an asset, or an amount taken out of earnings (such as bad debts). Expenses are summarized and charged in the income statement as deductions from the income before assessing income tax. Whereas all expenses are costs, not all costs (such as those incurred in acquisition of income generating assets) are expenses. When managing expenses, most companies categorize expenses as: 1. Operational Expenses 2. Capital Expenditures 3. Financing Expenses An operational expense is an ongoing cost for running a product, business, or system. In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year. Capital expenditures (CAPEX) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year.

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RK&S SMART SOLUTIONS, INC.

EXCELLENT IDEAS, SMART SOLUTIONS Financing Expenses can mean: a. generally in the corporate world, it is a companys interest expense on long-term debt; or, in greater depth it is b. it includes interest and related charges; foreign exchange losses on debt; net expense on the disposal of marketable securities; amortization of bond redemption premiums; additions to provisions for financial liabilities and charges and impairment losses on investments. In managing expenses, several factors must be considered: 1. Controlling expenses requires increased visibility and using information technology to automate and enforce rules and guidelines; 2. Expense management considers Liquidity, Solvency, Profitability and Financial Efficiency. 3. Expense Management requires appropriate metrics and analytics, including return on investments, return on assets, return on equity, operating profit margins and ratio analysis to insure the expenses provide the greatest benefit to the Company. Expenses are generated to run a business, create future benefit and pay for the cost of financial instruments. Therefore before generating expenses, the business must first develop a strategic plan, capitalizing on a Companys strengths for future opportunities and minimize the risk of future challenges. The dynamics of change can be viewed in terms of needed characteristics in management, changes in technology, or alternative competition. Sometimes a radical shift is required through change management, process development, technological implementation, strategic planning or operational improvement. If management understands how change will affect their industry or business, than they will allocate their expenses to insure that their strategic plan will raise them above their competition and insure that they maintain the competitive edge by becoming the newer, better, faster, smarter company that insures they maintain an infinite life. Than management will insure that the Company as a whole manages their expenses to accomplish their goals and that these expenses will be subject to the metrics and analytics to insure they meet Company standards. This White Paper was written by Richard B. Soscia, president of RK&S Smart Solutions and included other sources to develop its thesis and conclusion.

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