The Differences of Cost and Expense

Maybe today there are still not able to distinguish notion of "Cost" and "Expense" . Most people mentioned that the second term is the same sense but in fact these two terms have different meanings. This happens simply because there is no equivalent word for the term "cost".

People (especially Indonesia) already understand a misconception for example the term "Cost of God Sold" is defined as Cost of goods sold while the "Cost of Labor" is defined as the cost of labor. Means "cost" here means the price and also the cost. While the notion of accounting "cost" was not price or cost.

Cost and Expense are two different things. Let's look at an example of this issue to differentiate.

If you reserve the booking business making bags from fabric. One day there are customers who book bag as many as 100 pieces. The next day you buy the fabric as much as 75 meters. To create 1 piece of cloth bags as much as 0.5 meters is required. Price a meter of fabric is a 4 U $ D. Thus you spend money to buy fabric is 300 U $ D. You will use the fabric as much as 50 meters to make 100 bags. The rest you store in the warehouse for supplies.

In this example, Cost $ 300 U $ D consisting of the Expense of 200 U $ D and Assets  (Inventory) 100 U $ D.

In this example can be concluded that the "Accountants use the term to mean a cost expense That has being used up while a company is doing its main revenue-generating activities".

A Cost Not necessarily become an Expense. As we saw above, Cost $ 300 U $ D was composed of 200 U $ D as an expense and 100 U $ D as an asset.

Perhaps the most extreme example is when we buy land to run a business. Then the cost of land will only be recorded as an asset and will not be an expense because the land can not be depreciated.

Likewise, when we buy a machine for example for a factory, in balansheet cost of the machine will be recorded as an asset (Machine), but over time, the cost would be an expense because it would depreciate the machine when used in running the business and it was depending on what method of calculating depreciation.

While the burden has meaning to something that should be covered (as if the revenue obtained first, and because getting the revenue we have to bear the burden). Understanding Expense (cost) here in line with what is listed in the definition of the elements of financial statements in GAAP.