Expenses are the out-of-pocket charges sustained by a company as a direct result of its regular activities. Both one-time and ongoing expenses impact a business’s bottom line and accounting practices; therefore, it’s important to distinguish between recurring expenses and nonrecurring expenses when analyzing financial statements.
Weekly, monthly, or yearly costs are all included in recurring expenses. These company costs may seem small when seen individually, but they may become significant over time. In addition, the quantity and size of your company’s recurrent expenditures will increase with its expansion.
Moreover, the subscription economy is expanding, so your company will need to monitor and control more subscriptions for services shortly. More than 45 percent of IT budgets will be spent on cloud services like SaaS and IaaS by 2024.
Due to the increasing volume of invoices for recurrent services, it is more important than ever that businesses keep tabs on these expenditures and make timely payments. If you don’t keep up with them, your recurring expenses will quickly become a severe strain on your resources. With this kind of expansion, tracking company operating costs with only a calendar and some Excel files is no longer possible.
Business owners must differentiate between fixed and variable expenditures to better plan for the future and save costs. Here, we’ll define recurring costs and one-time expenses, discuss their fundamental distinctions, and provide various instances.
As a business owner, getting a solid grasp on your expenses is crucial for budgeting and planning. While some costs come up regularly, others are one-time purchases. Learning the key differences between recurring and non-recurring expenses can help you better forecast your cash flow needs.
In this comprehensive guide, we’ll break down the core features of each type of expense. Read on to learn more about categorizing your recurring and non-recurring costs, how to spot them in financial statements, and why understanding the distinction matters for the financial health of your company.
What Are Recurring Expenses?
Recurring expenses are costs that happen on an ongoing regular basis. They are essential purchases that a business needs to operate and function smoothly day-to-day.
Some examples of common recurring business expenses include:
- Rent or lease payments for office/retail space
- Utilities like electricity, gas, water, etc.
- Payroll expenses – wages, salaries, benefits
- Equipment maintenance and repairs
- Software subscriptions
- Inventory purchases
- Insurance premiums
- Marketing costs like web ads or print ads
- Professional services like legal, accounting, etc.
In other words, recurring costs are predictable, fixed expenses your business can expect to pay each month or year. They can be thought of as the baseline costs required to keep your doors open.
How Recurring Expenses Appear on Financial Statements
When reviewing financial statements, recurring expenses will show up in different places depending on the report
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Income statement – Recurring expenses are listed under operating expenses or indirect costs They come after gross profit calculation
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Balance sheet – Recurring expenses appear as short-term or long-term liabilities.
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Cash flow statement – Recurring expenses fall under cash flows from operating activities.
Examples of Recurring Expenses
The actual recurring expenses for your business will vary based on your industry, size, and specific operations.
For instance, a small social media marketing agency might see the following as recurring monthly costs:
- Office rent
- Salaries for staff
- Software subscriptions like project management tools
- Web hosting fees
- Electricity and wifi
- Insurance policies
- Equipment like computers/phones
Meanwhile, a restaurant’s recurring expenses could include:
- Rent payments
- Inventory – food/beverages
- Kitchen equipment maintenance
- Staff wages and benefits
- Gas/electricity
- Cleaning supplies
- Pest control services
- Online reservation software fees
- Music licensing fees
As you can see, recurring expenses differ across industries but they tend to be the regular purchases vital for daily business.
What Are Non-Recurring Expenses?
Non-recurring expenses are the opposite of recurring. They are one-time or infrequent costs that are not expected to repeat at set intervals.
Some examples of non-recurring business expenses include:
- Purchasing new equipment or company vehicles
- Office renovations
- Legal fees for a specific project
- Moving costs for relocating
- Major advertising campaigns
- Mergers, acquisitions, or company restructuring
These are essentially irregular, lump sum expenses. They can occur due to major company changes or special one-time projects. While recurring costs provide baselines, non-recurring help provide context on how broader company investments and initiatives impact finances.
How Non-Recurring Expenses Appear on Financial Statements
Non-recurring expenses typically show up on financial statements as:
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Income statement – Listed as indirect operating costs above the line. Can impact net income.
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Balance sheet – Show up as short-term liabilities.
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Cash flow statement – Fall under operating, investing, or financing activities depending on the expense.
Examples of Non-Recurring Expenses
Let’s look at some examples of potential non-recurring, one-time expenses for businesses:
- A medical supply company buys new distribution trucks
- A consulting firm moves to a larger office space
- A SaaS company acquires a smaller competitor
- A restaurant conducts a large national ad campaign for a new menu item
- A manufacturer buys and installs new equipment to increase production capacity
The non-recurring expenses on your own financial statements will depend on any major investments, projects, or operational changes happening during a specific period. These are good indicators of how a business reinvests in itself strategically over time.
Why This Matters: Planning & Budgeting
Properly categorizing recurring vs non-recurring expenses enables more accurate financial planning and budgeting. It helps you better manage cash flow and prevent surprise shortfalls.
Since recurring expenses are predictable, they allow you to reliably forecast how much capital you need to cover regular monthly or annual costs. You can allocate additional funds as needed toward non-recurring expenses and investments.
Unexpected non-recurring charges without proper planning can severely impact your working capital and profitability. By reviewing past financial statements and identifying upcoming projects or changes, you can better model for non-recurring costs in budgets and cash flow projections.
Getting clear on these distinctions allows you to:
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Avoid miscategorizing expenses – This leads to flawed forecasts and budgets. Ensure you note frequency properly.
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Improve capital allocation – Plan working capital to sufficiently cover recurring expenses month-to-month or quarter-to-quarter.
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Enable better decision making – Determine when major one-time investments make sense based on budget availability and value added.
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Increase financial transparency – Give stakeholders, investors, and lenders improved clarity into the company’s cost structure and health.
Tips for Managing Recurring and Non-Recurring Expenses
Here are some tips to help manage both types of expenses for your business:
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Track expenses diligently – Use accounting software to capture all costs and tag frequency (recurring vs non-recurring).
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Review past financial statements – Identify recurring cost trends and ranges to forecast future periods.
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Note upcoming company changes – Plan for any projects, renovations, major purchases, etc. that will incur non-recurring charges.
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Categorize expenses properly – Ensure your accounting system logs expenses with the right frequency tag.
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Analyze vendor contracts – Review agreements for upcoming rate changes that may impact recurring costs.
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Build expense buffers into budgets – Add 10-20% cushions on variable recurring expenses to absorb unforeseen increases.
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Plan purchases in advance – Avoid reactive, last-minute non-recurring purchases by aligning with budgets.
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Consult accountants – Ask external accountants to verify proper categorization as needed.
By mastering the separation between recurring and non-recurring expenses, you gain better financial clarity and control. Be diligent in your categorization, planning, and tracking of costs. This will enable smarter budgeting and cash flow management.
What are Nonrecurring Expenses?
In some ways, nonrecurring costs are more difficult to predict and budget for. Expenses labeled as unusual or one-time on a company’s financial accounts are ones the business does not anticipate recurring in the foreseeable future.
Many events might trigger nonrecurring charges, and these costs may be a significant distinction between GAAP and non-GAAP reporting.
Nonrecurring costs include those incurred during a merger, acquisition, purchase of the real estate, purchase of equipment, large-scale facility upgrade, severance pay costs associated with workforce reduction, or repair costs incurred as a result of a natural disaster or accident and may be required to be reported by companies.
It is common practice for businesses to modify GAAP net income for one-off costs. However, one common place to see these one-time expenditures is in the indirect costs column of the income statement, where they are treated as above-the-line expenses. In addition, nonrecurring expenses may be recorded as current liabilities or other types of short-term liabilities in the balance sheet. For example, non recurring expenses might appear in the cash flow statement’s operating, investment, or financing segments.
Investors should be aware of nonrecurring expenditures when reviewing a company’s financial statements because management has leeway in how they are reported and because they may considerably affect the profitability of a business within a given accounting period.
What are Recurring Expenses?
General and administrative expenses are the typical, continuous costs associated with running a firm in the industry in which it has decided to operate. Therefore, companies will include these charges as indirect costs on their income statements and need to account for them in their balance sheets and cash flow statements.
General and administrative expenses are necessary to run a business, including executive compensation, employee wages or salaries, research and development costs, travel and related expenses, computer support services, and long-term depreciation of property, equipment, and other assets.
Indirect recurring expenses, such as rent, utilities, and insurance, comprise the bulk of typical recurrent expenditures. Therefore, they are often seen in the income statement after the computation of net revenue and are combined to get total operating income.
Depending on how they run their business, each enterprise will be responsible for handling the accounting of recurrent costs. Sometimes, companies may group their recurrent costs under a single heading, such as “SG&A” or “General & Administrative,” keeping many of their recurrent expenditures under wraps. In addition, the line items used to report on recurring expenses at certain businesses may be expanded to provide additional information.
The cash flow statement and balance sheet both include recurring bills and costs. These things will be classified as liabilities on the balance sheet. They may be further broken down into current liabilities and long-term liabilities. Recurring expenses are often shown as operational activities on the cash flow statement.
What is Recurring Cost and Non-Recurring Cost?Recurring Cost&Non-Recurring Cost Examples&Difference.
What is the difference between recurring and nonrecurring expenses?
Recurring and nonrecurring expenses each have a different effect on the company’s income. Recurring expenses accumulate to form the basic operational costs for a business, which are the costs that keep the business running.
Do recurring and non recurring expenses form a product cost?
Recurring expenses generally get allocated as overheads to product cost. Since they are one-off and typically high quantum expenses, non-recurring expenses generally do not form part of product cost. 9. Examples Both recurring and non-recurring expenses impact the cashflow as well as profitability of a business entity.
Are non recurring expenses good or bad for business?
Non-recurring expenses like new premises or new equipment costs are positive in nature as they help improve business operations. However, some non-recurring expenses like large legal costs, costs of ceasing operations, costs associated with labor unrest, etc., can cause losses for businesses.
What is a non recurring cost?
Non-recurring cost on an income statement = indirect costs Non-recurring costs on a balance sheet = short-term liabilities Non-recurring costs on a cash flow statement = operating, investing, or financing activities Back to our carpet cleaning business example, you might see the following non-recurring charges:
