Allocating non-allocated company expenses to departments

There are two types of expenses; direct and indirect. It is relatively easy for any company to allocate a direct expense to a corresponding department because it actually happens in that department and is in no way associated with other departments. This type of expense is usually allocated in real time when it enters the system. An example of such an expense is salaries.

The other type of expense is an indirect expense, for example, an electricity or heating bill. These expenses are usually entered in the system using a special department like the corporation itself, a common expense department, or simply nothing (a null value). The company, to have a clear picture of how each department is doing, usually wants to allocate these expenses to all departments. Of course, there are many ways of achieving this and none of them are perfect. Because of that, the allocation is usually done at the later stage, not in real time.

For example,...