The bottom line is that to distinctively and correctly differentiate between cost and expense; one must understand the purpose and accounting treatment. I hope this article helps to avoid the interchangeable use of the two terms in the future. This article has been a guide to Cost vs. Here we discuss the top differences between cost and expense along with infographics and comparison table. You may also have a look at the following articles —.
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Difference Between Cost and Expense The key difference between Cost and Expense is that cost refers to the amount spent by the business organization for the purpose of acquiring an asset or for creation of the assets, whereas, the expense refers to the amount spent by the business organization for the ongoing operations of the business in order to ensure the generation of the revenue. What is Cost? Leave a Reply Cancel reply Your email address will not be published. Please select the batch.
Cookies help us provide, protect and improve our products and services. The definition of expense sounds similar to that of cost: "an amount of money that must be spent especially regularly to pay for something.
For example:. An expense is an ongoing payment, like utilities, rent, payroll, and marketing. For example, the expense of rent is needed to have a location to sell from, to produce revenue. You can also consider an expense as money you spend to generate revenue. There is usually no asset something of value associated with an expense. Buying a building is a cost; the cost is the one-time price you pay.
Paying interest every month on your mortgage for that building is an expense. Although we use the term "cost" with expenses, they are really just payments. Accounting types use the term "cost" to describe several different instances in business situations. Fixed and Variable Costs. Cost accountants spend there time looking at costs associated with making a product or providing services, to prepare budgets and analyze profits.
Cost of goods sold. The term cost of goods sold r efers to the calculation done at the end of an accounting year for businesses that sell products. The cost of goods sold includes several different types of costs:. Direct costs to make and ship products:. Indirect costs like labor, storage costs, and pay of supervisors for the factory or warehouse. Accountants use cost to refer specifically to business assets, and even more specifically to assets that are depreciated called depreciable assets.
The cost sometimes called cost basis of an asset includes every cost to buy, deliver, and set up the asset, and to train employees in its use. For example, if a manufacturing business buys a machine, the cost includes shipping, set-up, and training. Cost basis is used to establish the basis for depreciation and other tax factors. The cost of assets shows up on the business accounting on the balance sheet.
The original cost will always be shown, then accumulated depreciation will be subtracted, with the result as book value of that asset. All the business assets are combined for the purpose of the balance sheet. Expenses in accounting are used to determine profit. For operating any business understanding of costs vs expenses is very important.
If you are not generating the significant amount of revenue from purchased asset and expenses for maintaining that assets are high, then it will directly impact on bottom line growth of the company. The accountant uses the term cost to refer specifically to a tangible asset, and even more specifically to assets that are depreciated. The cost of an asset includes the cost of purchase, acquire, and set up the asset and to train the employee in its use.
For example, if the manufacturing company purchased a machine, the cost includes shipping, set-up, and training. On the other hand, in the business sense, an expense is an item of business outlay chargeable against revenue for the specific period. This has a been a guide to the top difference between Costs vs Expenses.
Here we also discuss the Costs vs Expenses key differences with infographics and comparison table. You may also have a look at the following articles to learn more-. Submit Next Question. By signing up, you agree to our Terms of Use and Privacy Policy.
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