Expenses are incurred at all levels , for example, families, companies, institutions or government. To manage expenses, you must have or have a budget. The difference between what is cost and what is expense in accounting, will determine the balance that sustains the company, or another in competition.
What is Cost?
Cost is defined as the economic expenditure that must be made in order to produce some good or service . Which includes payment of labor, purchase of supplies and administrative expenses that may arise.
To calculate the expenses in a company or organization, four categories are used within a defined period of time. These categories are industrial cost; financial cost; direct cost and operating cost.
What are Fixed Costs and Variable Costs?
They are those that are estimated in the short term and they include the expenses of the company, without taking into account the production obtained.
They are related to production, these costs will be greater than the investment.
In addition, depending on factors of production and products, costs can be direct and indirect.
What is Expense?
Expense is the outflow of money that a company, institution or person makes to cover the payment of a product or service that it receives . That outflow of money is not recoverable. Expense control allows the economic progress of a company, family or organization.
Among the expenses of families, companies or institutions, those that have to be made for services that we receive can be generalized, such as: electricity, water, telephone and taxes and any other,
Difference between Cost and Expense
– In the costs : 1. Use of resources under sacrifices 2. It is active 3. Payment for some good or service that we receive 4. It is recoverable 5. They are classified as fixed and variable. 6. They are investments.
– In expenses : it is the cost that is made against income, in an accounting period 2. It will depend on the results. 3. They are not recoverable 4. They group many lines 6. They can cause losses. 7 can be variable and unexpected.
-The most important difference between cost and expense in terms of accounting , can be seen in that costs are considered investments that are directly identified with income and expenses are not associated with the return of the sale of product or services .
-In addition , expenses and costs are accounted for differently, since costs are considered assets and expenses are reflected in the results.