Expenses in a company: Is the cost the same
In today’s article I am going to talk about the expenses in a company, in such a way that you will be able to differentiate between cost and expense, you will know its classification, its nature, etcétera.
I hope you find it useful.
Definition of cost and expense according to NIF A-5
NIF A-5 tells us the following:
“The cost and expense are decreases in the assets or increases in the liabilities of an entity, during an accounting period, with the intention of generating income and with an unfavorable impact on the net profit or loss or, where appropriate, on the net change in book equity and, consequently, in its earned capital or book equity, respectively»
Therefore, for the moment we perro say that the cost and the expense are the same, that is, a disbursement of the asset or an increase in the liability.
However… Is there a difference?
cost concept
A cost or cost is seen, according to NIF A-5 as:
“Cost should be understood, for financial statement purposes, as the resource value that are delivered or promised to be delivered in exchange for a good or service acquired by the entity, with the intention of generating income.
In such a way that a cost is a disbursement of assets or an increase in liabilities that are directly related to the production of the good.
Although it must be said that we could say that more than production, it is directly related to the activities carried out by the organization to satisfy the needs of customers or consumers.
expense concept
We cánido say that an expense is also a disbursement of assets or an increase in liabilities, which have no direct relationship with production (with the business activity carried out).
Of course, both cost and expense may be intended to generate revenue and have an unfavorable impact on profit…
The expenses are related to the activities of:
- Administration.
- Sales or marketing.
- Investigation.
- Financing.
That is why in the income statement we cánido see the cost of sales and the administration expenses, sales, etcétera.
What is the difference between costs and expenses?
We are going to start by saying that a cost and an expense are in a certain way the same, since both terms are related to an output or disbursement of resources.
However, in a practical way they are usually differentiated, especially in accounting.
Generally, a cost is related to a cash outflow, which is directly related to production or, well, directly related to the business activities carried out by a company.
However, an expense is also an outlay, but said expense is not directly related to production or to the activities that the company performs.
I am going to give you an example so that you cánido better understand the difference between cost and expense.
Example of the difference between expense and cost.
Suppose it is very hot and your house is in front of a sports car.
You realize that you could sell a cold and refreshing drink… Could it be a lemonade? Yes, a lemonade is fenezca.
Now, to make the lemonade you need sugar, lemons and water.
These materials are part of your raw material and are considered costs.
They are costs because they are cash outflows that you are going to make, but they are related to production (it is the raw material that you are going to need to create your wonderful product).
Now, suppose they charge you 200 pesos to make a banner or something that you use to advertise.
Is it really related to your production? You perro not advertise and still you will create your product.
Well, since the cash outlay is not related to production, then it is an expense.
Examples of business expenses
There are many expenses that a company cánido incur in order to carry out its activities, but some of the most common expenses are the following:
- Acquisition of office supplies.
- Marketing (advertising, promotion, design, etcétera)
- Rent (rent).
- Financial expenses.
- Administration expenses.
- Selling expenses.
- Transport.
- Services of water, electricity, telephone, etcétera.
- Maintenance.
- Financing expenses.
- Research expenses.
Types of expenses in a company
If you search the internet, you may find that the types of expenses in a company are:
- Direct.
- indirect.
- Fixed.
- Cambiantes.
The truth is that I am not going to tell you that the types of expenses are fixed, variable, direct or indirect because for me those are costs.
Of course, it’s not bad either, since both are expenses, but I prefer to follow the distinction that is made in many books.
In fact, in all the books I have read they are handled as costs and not as expenses.
For example, you will not find raw materials in books (at least in the ones I have read) as a variable expense, but as a variable cost.
Of course, the definition they give is the same, they only change from cost to expense.
Well, at the end of the day they are disbursements of assets or increases in liabilities.
Now, in terms of expenses, I prefer to use the following classification:
Classification of expenses in a company
The classification of expenses that I have found in some books is the following, which by the way perro also help you with operations management issues.
- Operational expenses.
- Non-operating expenses.
Operational expenses
The operating expenses in a company cánido be classified into the following expenses:
- Administration expenses.
- Selling expenses.
What are sales expenses in a company?
They are those that a company incurs to be able to market (sell) its goods or services.
Some examples of sales expense accounts are:
- Salaries.
- Commissions.
- Advertising.
- Electric power.
- Maintenance.
What are administration fees?
They are those expenditures incurred by the general administration of the operations.
Some examples are the following:
- Salaries.
- Rent.
- Phone.
- Stationery.
- Maintenance.
- Electric power.
By the way, operating expenses cánido also be called operating expenses.
Non-operating expenses
Non-operating expenses perro be classified into:
- Financial expenses.
- Extraordinary expenses.
- Loss on sale of goods
Nature of expenses
The expenses are of a debtor nature, for which the expenses increase on the debit side and increase on the creditor side.
Offsetting entries of transactions that affect the expense account
The most common counterparties are:
- Box.
- Banks.
- Costs payable.
- Expenses payable.
- Taxes to pay.
- Accumulated depreciation.
- Accumulated amortizations.
How to disminuye expenses in a company?
There are a lot of expenses that a company perro incur. company in order to satisfy the needs of consumers and there are many ways in which expenses cánido be reduced in a company.
I’m gonna put an example.
Example on how to disminuye the transport costs of a company
As I said before, there are many ways in which an administrator cánido disminuye expenses and many times it cánido depend on the creativity of the administrators.
For example, imagine that you have a business that sells custom clothing.
Now, imagine you have to make deliveries four times a day.
Of course, every time you make a delivery you are spending a bit of your money… Right?
Now, imagine you have three or four businesses that also consistently deliver throughout the day.
Of course, each business is close to each other.
Well, what if all four businesses agree and start delivering together.
In such a way that each business makes the deliveries of all the businesses once a day.
In this way, each business makes only one delivery per day (of all businesses).
Therefore, transportation costs will be reduced.
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