What is the difference between expense and loss?

Definition of Expense

An expense is a cost that a company incurs or uses up when it earns revenues.

Examples of Expenses

A few examples of the many expenses that a company incurs in earning revenues are:

  • Cost of goods sold
  • Sales commissions expense
  • Delivery expense
  • Rent expense
  • Salaries expense
  • Advertising expense

Definition of Loss

A loss could have several meanings. The following examples illustrate how the term is used.

Examples of Losses

Some examples of losses include:

  • The sale of a long-lived asset for an amount that is less than the asset's book value
  • An unfavorable settlement of a lawsuit against the company
  • The retirement of bonds payable at a cost that is greater than the carrying value of the bonds

Loss is also used to describe write-down of inventory from cost to market.

Finally, loss is also used to describe the bottom line of an income statement that reports expenses in excess of revenues.

The FASB's Statement of Financial Accounting Concepts No. 6 (December 1985) discusses expenses and losses in paragraphs 80-89. You can access this concepts statement at no cost at www.FASB.org/st by selecting "Concepts Statements".

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