The concepts cost and expense, in the same way as the concepts value and price, present, in most cases, situations in which both concepts tend to be confused, believing that we are talking about the same thing. However, there are clear differences that, in a way, establish the division between the two concepts.
And, although it may be believed that both concepts are sometimes synonymous, in many other circumstances they refer to two completely different situations, where the object of the disbursement is completely different.
Therefore, the cost or cost is all that money disbursement made by the company, which is destined to the payment of those obligations that are required to keep the production process of those goods and services that the company produces active. These, in accounting, are classified as investments, since they are directly related to the company’s income.
On the other hand, the expense is all that economic outlay, or payment, that the company makes to produce a product or service. However, unlike the cost, the expense, in accounting, is not directly related to the manufacturing process, so it is not considered as if it were an investment.
Finally, to complete the distinction, we must know that, while in accounting, costs are considered an asset, expense, on the other hand, is considered a liability.
Cost and expense characteristics
The main characteristics that motivate its distinction are the following:
Cost or cost:
- It is related to production.
- It is essential for obtaining income.
- It generates a return at the end of its life.
- It is related to the bureaucracy and the administration of the company.
- It is essential to maintain the operational part of the company.
- It is not associated with any direct return of capital.
Expense and cost example
To finish getting a clear idea of the differences that exist between these two concepts, we proceed to give an example of each of the concepts.
Therefore, as an example of cost, we could include the machinery that a company needs, and in which it invests to get production.
In the same way, we could consider as cost the raw material necessary to produce, as well as the tools that allow the employee to make and finalize the production of a good.
On the other hand, as an example of spending, we can include spending on personnel and the salaries they receive. At the same time, we can also include expenses in taxes, for example; among another series of games that would be included here.