Technically, cost and expense are the same meaning. However, they have distinct meanings when used in the context of business. The difference between cost and expense is essential, especially in business. If you work for a company or manage your own business, it’s necessary to know what both terms mean and how they differ from one another. In short, a cost is an obligation that must be paid to accomplish something. An expense is a specific type of cost that can be directly tied back to some sort of benefit received from completing the obligation or goal.
Cost is the value of money. It can be an amount of money or the price you pay to get fixed assets. Cost is a one-time payment of capital and is forward to the balance sheet as a capitalized item. For example, if a company buys machinery for $50,000, then a company can say that a car costs $50,000. Businesses reflect it as a balance sheet item because it is a one-time payment.
Expenses are the money you spend to run your business. Expenses include fixed monthly expenses such as rent, utilities, etc. It is the sum that people should utilize for normal expenses and the payments that go along with them. The expenses are recorded in the profit and loss statement as they impact profit. The cost of the product is related to the price that the producer or vendor offers. In addition, expenses are not the same as costs, which a company incurs to provide products and services to customers. For example, in the above example, a company buys a car for $50,000, which is the cost of a car. Now, if we charge depreciation on a car @10%, it would be $5000. The $5000 is an expense and recorded in profit and loss statement.
There are many differences between cost and expense. However, these two types go hand-in-hand when figuring out how much things cost us financially. In this article, we have explained the key distinction between costs and expenses with a comparison table.