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What's the difference between costs and expenditures? Thanks

Anonymous A asked on May 18, 2019
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Ian
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replied on May 19, 2019
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An expenditure is when you spend money, but receive nothing in return (credit card fee) while a cost is something you spend but you receive financial benefits in return.

Some good examples are:

Cost of goods sold = cost

Operating expense (i.e. SG&A) = Expense

Depreciation = Expense

This all being said, For case purposes I tried all of these in the "Costs" portion of my profit tree, and split more into FC and VC than Costs vs expenses. I'll lean on the other consultants here, but in my view you shouldn't really worry about this difference when solving a case (as it's an accounting concept, not a strategy concept).

Daniel updated his answer on May 19, 2019
Imperial College PhD, Rolls-Royce Project Engineer, RWTH Aachen Mechanical Engineer and Business Administrator, Software Engineer

Hi,

this is fundamental accounting knowledge. Three terms are relevant: expenditure, expense, cost.
Expenditure: money that goes out of a company (in the current period) and is shown in the cash flow statement
Expense: money that goes out of a company or reduction in tangible or intangible assets (use of resources for instance) (in a particular or future period) (relevant for the income statement). So an expenditure is an expense, but not all expenses are expenditures.

Cost: If the expenditure or expense is DIRECTLY related to the production of a product or delivering a service, it is called cost such as fixed and variable costs / direct vs indirect costs.

Best,

Daniel

(edited)

Vlad replied on May 19, 2019
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Hi,

You don't need this for the case purposes. So just use the costs. Don't overcomplicate things:)

Best!

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