Are you Confused Between Cost and Expenses ?


What is the difference between cost and expense? Difficult and confusing question – Confusing because both terms are used interchangeably difficult because no body has explained it in simple words. But I will explain you both these terms in simple words with a simple example —

Please see above ferrari and let`s suppose that Lalit Bhojwani had purchased this ferrari in ₹ 2,50,00000 on 16 January 2010 so ₹ 2,50,000 was the cost for Lalit Bhojwani that was going to expire. And after one year on 16 January 2011 Lalit Bhojwani has sold the car in ₹ 1,50,00000. It means the ferrari has depreciated ₹ 1,00,00000 and this ₹ 1,00,00000 is the expired cost for Lalit Bhojwani. That ₹ 1.00.00000 is expense for Lalit Bhojwani.

In property business if you purchase only land than this is the cost that will not expire because land does not depreciate.
Always remember Cost of Goods Sold = Expenses. (Though both are used interchangeably)

In short
COST = The resources we sacrificed and is going to expire
Expense = The sacrificed resources that has been expired.

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