What is cost incurred?

Definition of Cost Incurred

A cost incurred is a cost that a company (or other organization) becomes liable for.

Example of Cost Incurred

Assume that a retailer begins operations on December 1 and its electric meter is read by the utility on the last day of every month. During December the retailer will have incurred the cost of the electricity it used during December.

Under the accrual basis of accounting the retailer must report a current liability on December 31 for the amount owed to the utility for the electricity it used to that point. On its income statement for December, the retailer must also report electricity expense for the cost of the electricity that it used during December. This may require the retailer to record an accrual adjusting entries with an estimated amount (if the electricity bill is not received in time).

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