Although expenditure, investment, and cost may seem very similar, there are very important differences between these concepts that are worth knowing.
In the financial world, there are terms that, due to their proximity, are often considered synonymous, but in reality, they are more different than they seem. This is the case of expense, investment, and cost, concepts that although they seem very similar, have very important differences. Every person must know them to make correct use of them.
The definition of cost is the monetary effort that has meant to whoever produces a certain good or provides a service. Meanwhile, the expense is the expiration of elements of the asset that have been voluntarily incurred to produce income. Investment, on the other hand, is the linking of liquid resources in exchange for the expectation of obtaining benefits during a future period.
That said, what would then be the difference between these three concepts? We will detail it below.
The cost is the money that a company allocates for the creation of a product or to offer a certain service (Photo: Shutterstock)
DIFFERENCE BETWEEN EXPENDITURE, INVESTMENT, AND COST
According to the Informa BTL portal, the cost is the money that a company allocates for the creation of a product or to offer a certain service. However, this does not involve the money needed for administrative and sales processes.
Likewise, costs are important because they help make decisions in a business and allow the control of raw materials, labor, and general production costs.
There are four types of costs:
- Fixed costs (all costs or payments that the company must make regularly)
- Variable costs (disbursements that depend on production)
- Direct costs (outlays of money that are allocated to the production of a specific product)
- Indirect costs (disbursements that are assigned to the production process in general)
The expense is all the disbursements or payments that the company makes to produce the product or service, but that are not directly linked to the manufacturing process
An expense can be considered as a monetary effort but it is not recoverable, so it is not associated with the income of a company, but with the expenses.
That is, the expense is all the disbursements or payments made by the company to produce the product or service, but which are not directly linked to the manufacturing process (administrative staff salaries).
Some experts consider spending a loss. On the other hand, as in the cost, it also has four types:
- Fixed expenses (disbursements that are essential for the operation of the company)
- Variable expenses (payments that cannot be predicted, but must still be covered)
- Operating expenses (payments that generate some type of remuneration or income for the company)
- Non-operational expenses (money outflows that do not guarantee income, but still must be paid)
The Economipedia site explains that an investment is not only associated with economic or financial criteria but that it is everything that allows a subsequent improvement in exchange for using resources today.
An investment can be considered as the monetary effort, whose purpose is to obtain materials that are used in a company and that has a certain utility, and that is finally expected to be recovered in a certain period.
It should be noted that the cost is considered an investment. The purpose of the outflow of money from a company is that said amount returns to the coffers of the company.