Costs and expenses

Generally, in financial statements, costs are those proportional to the costs sold or variable. While expenses are independent of production, that is, they are fixed costs.

For example, a bar pays for sugar, water, and coffee in proportion to the number of coffees it sells. While the rental of the place will remain the same, whether you sell few coffees or sell many.

Since the price of the goods or services should at least cover the costs, the latter are usually not a problem. Covering expenses is, on the other hand, the great problem of every entrepreneur, who under a certain level of sales finds himself at a loss, while above it he begins to gain.

What are the costs:

The cost is the value of the consumption of a factor, that is, the outlay that must be made to produce a certain product. Cost is an internal variable of external spending.

Cost characteristics

Any investment that a company must make to produce a product or offer a service is called cost. Without this value, sales cannot be started or continued. To increase the quantity produced, in general, it is necessary to increase the cost of the company.
Here we can also define the concept of “cost price”, which is the minimum amount spent by the company to manufacture a given product. If the material is sold at cost, the company has no profit. In addition to the cost price, it is necessary to calculate the selling price; the difference between the two is the profit.

Examples: raw materials, water, electricity from production, depreciation of machines, packaging.

What are the expenses:

Expenditure is the resources used to acquire a factor. In other words, it is the general outlay made by a company to develop its activities. Expenses are a part of costs. Expense is a broader concept of cost, which includes more economic variables.

Expense Characteristics

Expenses include everything the business must have to maintain the minimum operating structure. These are values ​​invested in commercial, administrative, marketing and human resources. Expenses are not directly related to the production of new items to be sold by the company, but could influence revenue growth.

Expense types

Expenses can be divided into two categories:
* Fixed: does not vary with the amount of goods or products sold by the company, such as office supplies.
* Variables: varies according to the number of products produced by the company, such as the commission from sellers.

Examples: salaries, office equipment, telephone, rent, sellers commission, advertising purchase.

Conclusion:

The costs and expenses s are variables to be carefully evaluated. Its impact on the bottom line of an investment far exceeds intuition.
Always the difference between costs and expenses are very important since they make a company sustainable in the market. It should be taken into account that a company must have income. We can say that Income is the sum of costs and benefits.