How are costs different from costs?

Costs and expenses - very often even financial workers and economists confuse these almost identical terms. But an error in the term can cause serious problems in the finances of a business. What is the difference between these two values?

Difference in terms

Costs, by definition, are the valuation of the organization’s production resources. As for expenses, according to accounting, under them is determined the reduction of economic benefits during the reporting period, occurring in the form of depletion or outflow of assets. Costs are expressed in the reduction of the capital, which is in no way connected with its distribution between several owners.

This is a vague definition, but from these we can draw three conclusions about the costs. At expenses:

1. Products leave the company.

2. Products remain, but begin to decline in value.

3. Products remain, but there is such an obligation to someone from outside, because of which the company must part with them.

Now more about these three situations

Situation analysis

Resources leave the company

A common case is when the products are finished or finished products (service, work). A person sells a service, work or product, that is, he parted with it, and the resource leaves the company. Another option is the disappearance of values ​​within the company, that is, theft.

Another interesting example is the fine that a company paid to another company or state.

Resources are lost in value.

The reduction in the cost of any financial resources is possible for two reasons:

1. Loss of the initial characteristics and parameters of material objects in the enterprise. For example, this is a new machine with a life of 4 years. But after 2-3 months the car got into an accident. It was restored, but it is clear that now it is not only not new, but also will not be able to work out its entire service life normally. Value has gone down, as has cost because of costs.

2. The second reason is already of a technical nature and it is connected with accounting. The bottom line is that accounting reporting standards oblige you to evaluate company resources at the smallest value - value at sale or cost. Therefore, if in accounting the cost is lower than the market, accountants need to equalize the value with the market.