Next, we will briefly comment on you what is the difference between expenses, costs and disbursements – comparison chart so that you learn to differentiate these terms of business economics.
In short, knowing aspects such as income and expenses in financial accounting or costs and disbursements is something basic that every entrepreneur must master.
What is the difference between expenses, costs and expenses? – Comparative chart
The terms disbursement, expenses and costs they are often confused, but they are three different things. Next, we will tell you in a summarized way what each of these common terms for companies is about.
Disbursements refer to money spent for any purpose in a company. In general terms disbursements are both expenses and costs. In conclusion, any money allocated to a purpose in a business will be considered an outlay and this is divided between expenses and costs.
Costs are all money spent on production, that is, money spent for the purpose of develop the product / products what the company does. In any case, it is very important to have certain considerations to fully understand what costs are.
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The costs include only the money earmarked for production directly. That is to say, aspects such as the raw material necessary to create the products are considered here, in the same way, transport is also taken into account, as well as other factors.
- Fixed costs: Here we find those recurring expenses such as the purchase of raw materials or the payment of premises rents.
- Variable costs: refers to the variations in production, for example, the purchase of new raw material or variations in the prices of the raw material that is acquired. It is in this type of disbursement that it is analyzed why the costs of raw materials and production increase.
On the other hand, although expenses are also related to money destined for production, their position is less direct, mainly focused on administrative issues. Expenses also include money related to production, for example, salaries are taken into account in this section.
In any case, the money destined to the payment of the company’s services is also considered as expenses. In addition, all that money that is dedicated to the correct development of the company will be considered as an expense.
- Fixed costs: Fixed expenses are directly related to the money necessary for the development of the company. Here we will find the services (electrical service, water, etc.), aspects such as cleaning and maintenance of premises are also considered.
- Variable expends: Variable expenses are those unpredictable that can occur. For example, the maintenance of a malfunction in a machine could be considered a variable expense.
All of the above are important aspects for the management and accounting of petty cash in internal control, but if you still have doubts, it is better that you know the differences between cost and expense.
Difference between cost and expense
There is often a lot of confusion between expenses and costs, but there are slight differences with which it is easier to discern between each one.
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- The costs when intervening directly with production expenses, entail being that money invested directly to earn income. On the other hand, the expenses come to be all those disbursements related to the company, but that do not contemplate a direct income.
- Another huge difference in accounting between expenses and costs is that while costs are considered assets of the company, the expenses are just that, expenses.
- The money provided for expenses has purposes directly related to the administration of the company. Meanwhile, costs refer to money spent on production.
- As a unitary aspect of these factors, it is fair to point out that both expenses and costs are disbursements.
Clearly, all of the above focuses on the business world, certainly from these economic aspects we can learn a lot for daily life. In fact, using some of the best apps for tracking personal expenses and other options in everyday life will help you better understand the needs of your business.
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