Textbook Problem

Explain the difference between cost and expense.

To determine

State the differences between the cost and an expense.

Explanation of Solution

Cost and Expense:

Cost can be defined as the cash and cash equivalent which is incurred against the products or its related services which will benefit the organization in the future whereas, all the expired costs are known as expenses. When the cost is used in generating revenue, then the costs are said to be expired.

Following is the table representing the differences between cost and expense:

Basis	Cost	Expense
Nature	It is the dollar measure of the resources that are used to earn benefits.	It is an expired cost for which the benefit has already been used.
Treatment	Companies always try to reduce the amount of cost in order to gain more benefit.	Expenses are deducted from the revenues while evaluating the amount of net income.
Example	When a furniture manufacturer purchases timber worth $9,000, then the cost borne by the manufacturer is $9,000.	Direct materials, direct labor, manufacturing overheads, selling and administration expenses are treated as expenses for a manufacturing company.

Table (1)