A line item in Accounting Standards (Accountancy) simply means an item that is related to a group. The group might be admin expenses, direct costs, income, or any other group in the financial statements of a company.
Line items are items of expenses or incomes that can be grouped together due to their same nature. For example, expenses like computer repairs, new tables for staff, legal counsels, and other office fixtures and equipment are all related to administration and can be grouped together to give the users precise data about expenses. Hence, line items!
Why Items are Lined?
In most businesses, hundreds and thousands of different types of expenses occur. Most of these expenses belong to specific groups/categories. To avoid listing thousands of expenses in the financial statements, accountants group together expenses that have the same nature.
Let’s say a manufacturing business incurs the following expenses in a period:
- $40 paid for printer repair
- $500 material costs
- $250 Labor costs
- $90 overtime labor costs
- $50 dining expenses
- $58 Rent Expense
Listing these expenses as such would make the financial statement a mere long list and it would be hectic for users to understand what’s happened in the period. To make it easy for them, the same nature items are lined together. In our case, the 40,50, and 58 relate to administration and can be presented under the category admin costs. The rest could either be grouped to material and labor OR presented under Cost of Goods Sold (COGS).
Lining items help a business to efficiently record certain transactions in the ledgers and give helpful information about expenses to stakeholders.
