Difference Between Cost and Expense

For someone who works as an accountant to talk about costs or expenses, they are familiar to their ears. 

When compiling the financial statements it is indeed quite important and should not be missed, keeping in mind that there are expenses and income in the financial statements because these expenditure elements have costs and expenses. 

However, do you know the difference between costs and expenses in accounting? For more details, we will discuss the difference between the two.

Definition of COst and Expense

• Cost
Costs are costs incurred to produce goods or services for profit or to obtain benefits that have economic value in the future. 

An example is an asset purchase that is carried out in accordance with an accounting principle called purchase costs. Buying these assets can certainly cause costs so that the amount of cash held will decrease. However, in the future you will benefit economically. 

These costs are considered as assets so that expenses can occur when spent in the future. Therefore according to PSAK No. 16 The 2007 revision states that the acquisition cost is the amount of cash paid or the fair value of benefits that can be submitted to obtain assets at the time of the acquisition.

• Expense

While costs (expenses) are a decrease in economic value as cash outflow or reduced assets. These costs are considered liabilities because they can cause the value of equity to decrease. Usually also, considered a sacrifice that has occurred. 

These costs are recorded in the income statement under the account name, including rent, depreciation, electricity, salaries and so on. So what exactly is the difference between the two?

Cost and Expense

• Position on Financial Statements

The most striking difference is when you will prepare financial statements. Costs in financial statements are usually found at the time of preparing the balance sheet usually also has a form that can not be used or also can not be predicted. 

This can provide benefits so these costs are considered as assets. While expenses will usually appear on the financial statements which are located in the preparation of the income statement. Expenditures will appear in the form of expenditures used and will not provide future benefits that have a period of not more than one year.

• Accounting period

Other differences can also be seen in the accounting period. These costs have a period that is longer or more than one year and is considered as part of capital expenditure. 

Capital expenditures incurred are aimed at obtaining fixed assets. This is to improve efficiency in carrying out business operations of the company but the productive capacity of fixed assets. 

The amount of costs incurred in units of rupiah is greater than the total amount of expenditure. The cost itself has a period of no more than one year and is usually considered as an income expenditure that can provide benefits in the current period. 

That is the reason why costs incurred are not capitalized so they will be immediately determined as assets on the balance sheet and immediately charged to the income statement.

Benefits Obtained

In terms of the benefits you can get, of course it's different, for the cost benefits you can get is income. 

Then, for the burden of benefits that can be obtained, namely the use of resources. That is the difference between the two. Both costs and expenses in accounting have different roles. 

However, many people assume that both are the same conclusions that through their calculations greatly affect the way reports are made and the accounting cycle.