Expenses are the costs that relate to the earning of revenue. Another way to think of expenses is as the costs of doing business. Expenses represent the outflow of a stream of expenditures following out of the organization. Examples of expenses include salary expense for labor performed, payroll tax expense for taxes paid on the salary, utility expense for electricity, and interest expense for the use of money. Many managers use the term expense and cost interchangeably.
The expense in its broadest sense includes every expired (used-up) cost that is deductible from revenue.
Grouping Expenses for Planning and Control
Cost centers are one form of a responsibility center. In a responsibility center, the manager is responsible for a particular set of activities. In the case of a cost center, a particular unit of the organization is given responsibility for controlling costs of the operations over which it holds authority. In healthcare organizations, it is common to find departments as cost centers. This is often a logical way to designate a cost center because the lines of authority are generally organized by department.
Diagnoses and Procedures is another common form of grouping expense for purposes of planning and control. This grouping is beneficial because it matches costs against common classifications of revenues. One prevalent method group cost into cost centers by major diagnosis categories (MDCs).
Care Settings and Service Lines: expenses can be grouped by care setting, which organizes the different sites at which services are delivered. “inpatient” versus “outpatient” is a basic type of care setting grouping.
Cost Reports as Influencers of Expenses Formats
Cost report uses a method of cost finding. Its focus is what is called a cost center. The cost of finding “cost center” is broadly speaking a type of cost pool used in the cost finding process.
The primary purposes of the cost pool/cost center in cost finding are to assist in allocating overhead. The cost centers are grouped into seven categories: