Understand the difference between costs, expenses and expenses

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Understand the difference between costs, expenses and expenses
Excel Spreadsheets

Carrying out financial activities is not an easy task. You have to deal with numbers, values ​​and prices carefully, because an error can mean a great loss to the company. In order for financial management to be done correctly, it is necessary that the person responsible for difference between costs, expenses and expenses. So we've prepared this post with explanations and examples that can help in understanding. Check out.

Cost

Every investment a company needs to make to produce a product or offer a service is called cost. Without this value, it is not possible to start or continue sales. 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. On top of the cost price, is to calculate the selling price - the difference between the two is profit.

Examples: raw material, water, electricity from production, machinery depreciation, packaging.

Expense

Expenses include everything the company needs to have to keep the minimum structure working. They are values ​​invested in the commercial, administrative, marketing, human resources. Expenses are not directly linked to the production of new items that will be sold by the company, but may have an influence on revenue growth.

The expenses can be divided into two categories:

  • Fixed: they do not vary with the amount of goods or products sold by the company, such as office supplies
  • Variables: it varies with the quantity of products produced by the company, such as commission of sellers.

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

Expenses

Expenditures are the values ​​that the company did not predict in the budget, but that need to invest to continue production. As an expense is unpredictable, it is not possible to be passed on in the price of the product, therefore, the company must bear the loss.

Examples: defective part replacement, service.

In order to manage the costs, expenses and expenses of your company, it is ideal to use a cash flow spreadsheet. Using the tool, managers can roll in and out, check what they need to pay and what they have, and thus analyze how the company's cash flow is going. In addition, you can access the financial statement (DRE) and evaluate the reports that are generated automatically.

A spreadsheet cash flow streamlines various activities, increasing team productivity and allowing those responsible to have more time to devote to strategic business planning.

Did you have any questions about the difference between costs, expenses and expenses? Leave your question in the comments below.

Excel Spreadsheets

20 COMMENTS

  1. Hi Alexander, have you seen our other posts here on the blog - I do not know if we cover all these options that you listed, but sure enough has a good thing

  2. Hi Rafael ! Congratulations on that article. Some concepts that also would like some clarification are: Disbursement, Losses, Waste, Investment, Direct and Indirect Cost and Costing Methods.

  3. Hi Maria, how are you? Did you get to read the post? Half of the answer you're looking for is spelled here =]. About the second part:
    1 - proceeds - are the benefits (dividends, bonuses, subscription rights, interest on capital and others) distributed by a company to its shareholders
    2 - recipes - is everything you collect as payment for selling a product or providing a service
    3 - receipts - seems to me a synonym of recipes

  4. Ola Rafael Ávila, could you please tell me what the difference is between Cost, Expenses and Payments?
    Also the difference between Revenue, Revenue and Receipts?

  5. Hi Jamile, in general the cost is the classification of the expense linked to the production or provision of the service and the expense is the classification of the operating expenses of the company. One way that can ease your thinking is this: "Does this expense increase if you produce more products?" If the answer is yes, then it probably will be a cost. If not, an expense.

  6. Hi Cristiano, how are you?

    This is a choice you can make as you find it more interesting and more aligned with your business.

    An example: A software development company that pays a fixed monthly amount to its programmers can allocate this value as a cost of closed projects or as a company expense, whichever makes the most sense to it. In my opinion, if these people do exclusively the end activity, it makes sense to think like cost.

  7. Hello, please, a question about the classification. The percentage of the payment of the services rendered by third parties in my establishment, being these fixed workers and acting directly in the end business of the company, should be considered fixed costs or expenses? Are the% fixed and withdrawn from tabulated values ​​of the services, that is, do they vary?

  8. All yes!
    OK thank you,
    Bjo

    In 15 March 2017 10: 07, Disqus wrote:

  9. Hi Maria, how are you? I am not aware of CPC 16 and I do not know what the technical content of it is. In general, costs are linked to production and expenses are administrative expenses, etc.

  10. In CPC 16 dealing with inventories says: What will guide on the determination of the cost value of the inventories and on their subsequent recognition with expense in result. How does the cost turn to expense? Thank you

  11. Hi Luiz, there is no absolute truth about this kind of thing, but the most common and what I believe to be correct is to be debited from the company cash and what is left over (profit) is divided at the end of quarters, semesters or year of agreement with this participation. It is also worth thinking about a cash reserve.

  12. Hello, are the expenses with lighting, painting and remodeling paid according to the percentage in the company's part of each partner, or are they charged directly from the company's cashier?
    Thank you!

  13. Hi John, how are you?
    Investment is an expense, depending on how it is done and how you are calculating your results will be classified as investment itself, because one care you must have when evaluating the finances of a business is to know which activities are operational and which are not are.

  14. Investments that the company does, would it have a rating? Or the classification would be the investment itself?

  15. Hi, Adriane, everything good? There is a lot of theory in this, but in my view, yes, all costs are spent and all expenses are spent. The difference is that the costs are linked to production or service provision and the expenses are the general expenses of the company

  16. Hi Vasco, there is no right answer, it will depend on the type of activity of your company. If your end activity is financial, the interest would probably come as an expense, if not as an expense

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