help me distinguish the meaning of expense and cost used in

by Guest » Wed Mar 14, 2007 07:44 pm
Guest

In insurance financial documents as well as the term cost and expense always come together, but I do not know the real difference in meaning. Could you help me distinguish the above terms.

Total Comments: 2

Posted: Thu Mar 15, 2007 02:12 am Post Subject:

Can we clarify what kind of policy we are talking about here?? I am having a little trouble figuring out what it is that you are asking exactly. Can you clarify and be a little more specific?

Posted: Fri Mar 16, 2007 09:01 am Post Subject:

hello,

for the fact that you have not specified what kind of insurance policy you are talking about here as Monique where asking you, i would answer your question in the accounting aspect of both terms. The fact is, many people are being confused with the term cost and expense. Many people use these terms as if these terms are really with the same meaning. But there is a difference between these two terms in accounting perspective.

Cost can be an expense but not all the time. Cost is associated with the amount of money or anything that is exchanged with something. For example, you are buying a car and that would cost you $25,000 (wow! what a car. lol) The cost here is the amount of $25,000 but it is not considered as an expense on your part. The car that you bought will be considered as an addition to the assets that you have. On the other hand, if you are buying supplies for your business operation, when there is a usage of these supplies, these should be treated as expense. Just like when you buy office supplies with a cost of $500. And when these supplies are used, they are treated as an expense.

Another example is this. When you are buying a piece of land, the cost of the land would not be treated as an expense for the very reason that land does not normally depreciate. This cost will be reported as an asset. When you are buying a furniture and fixture for example, the cost of this will be treated as an asset until the next months that it will depreciate. The depreciated value of the asset will be treated as an expense as long as it is used for the business operation.

This is the basic difference between cost and expense. Remember that cost may or may not be an expense and expense is only associated in the basic operation of the business. I hope this could help.

Thanks

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