Distinction between costs, expenses and losses

Last updated: 26.03.2016

To start with the topic, it is necessary to distinguish between the terms "costs", "expenses" and "losses. Although "costs" and "expenses" are sometimes mistakenly used interchangeably, there is a difference.



is a used cost incurred to obtain revenue.



is a broader term. It can, but does not need to be an expense. It can be expressed, although not precisely, as expenditure.



Suppose that your company is engaged in painting apartments. You buy several paint boxes, use ¾ immediately and store the remaining ¼ for the next job. The total amount spent for the paint will be "cost", but the ¾ already consumed represent "expense".  Part of the costs thus remains in inventory.

Cost is also quite often used in connection with the purchase of fixed assets. This is in fact subsequently capitalized to long-term assets and the cost will be incurred only in the form of depreciation (however, if it is depreciated). The price at which the asset was acquired is "cost", whereas the subsequent depreciation will be "depreciation expense".



represent an expense which will not be used to obtain revenue and no repetition is expected to occur in the future.  Example of losses can be abnormal wastage.


Therefore, "expenses" can be found in the income statement for the accounting period, but "cost" not always because a certain amount can be tied for example in inventory or long-term assets.



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