THE COSTS
DIFFERENCE BETWEEN COST AND EXPENSE

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  • Financial Information
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  • Introduction to Cost Accounting
  • Cost definition
  • Use of Costs
  • Classification of Costs
  • Inventory Valuation
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  • Standard Costs and Variances
  • Cost-Volume-Profit Analysis
  • Break-Even Point
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            It is very important to distinguish between what is a cost and what is an expense. A cost is a sacrifice of resources.  Every day we buy many different things like clothes, food, books, music, or even a car, and so on. So when we buy something, we cease to have the ability to use these resources (typically cash or credit line) to buy something else. The price of each item measures the sacrifice we must do to acquire it. Whether you pay cash or use any other asset, and to pay now or later (if we use a credit card), the cost of an item purchased is represented by what we give up as a result.
    Now, an expense is a cost charged against income in an accounting period, then the costs are deducted from income in that accounting period. We incur a cost when desist (sacrifice) of resources, whether it is counted as an asset or an expense.
            The cost accounting focuses on the costs, not expenditures. The two broader categories in costs are the disbursement costs and opportunity costs. A disbursement cost is a past, present or future cash flow. Consider the cost of a college education. Clearly the cash flows that are tuition, books, and fees are disbursement costs. Cash is not all that students sacrifice, they also sacrifice the time to take a college education. This time sacrifice is an opportunity cost. The opportunity cost is the loss of a benefit that could have been realized, and which has been renounced by the best alternative use of a resource. For example, many students left their jobs to take time to get a career. El ingreso al cual se ha renunciado es parte del costo de obtener una carrera profesional y es el beneficio al cual se ha renunciado que podria haberse realizado por el uso alternativo de un recurso limitado: tiempo. The earning which has been renounced is part of the cost of obtaining a career and is the benefit to which they have give up that could have been realized by the alternative use of a limited resource: time.




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