Difference Between Loss and Expense
Loss – is the excess of expenditure incurred over revenue earned by a business for a given accounting period. It reduces the total capital invested in the business.
Such monetary damage may arise due to;
- Business operations – Relating to business activities.
- Non-recurring events – Relating to unforeseen events e.g. fire, theft, loss on sale of fixed assets, etc.
- Accounting loss – Relating to accounting policy or accounting standard changes, etc.
Loss Shown in Financial Statements
Net Loss incurred by a business is shown on the credit side of an income statement as a balancing figure. At the time of preparation of final accounts, the loss is transferred to the balance sheet.
Expense – Money spent by a firm for generating revenue is termed as expenditure or expenses. The cost incurred as expense usually expires during the same accounting period, i.e. it is not carried forward to a future period.
Expenses may occur in the following forms;
- Cash payment of currency, for e.g. paying bills such as rent, salaries, etc.
- A decline in the value of assets (e.g revaluation loss or investment loss), etc.
- Accepting a liability, example – accrual of rent, etc.
- The total cost of goods sold.
- Depreciation & Amortization.
- Bad debts, etc.
Expenses are classified in various different ways;
- Direct or Indirect Expense – Based on the relationship with the core business.
- Capital or Operating Expense – Based on the type of expenditure.
- Petty or Sundry Expenses – Based on the size, quantity & relevance.
Expense Shown in Financial Statements
Expenses incurred by a business are shown on the debit side of an income statement and are further used to compute the net gain or net loss of the company.
One of the main difference between loss and expense is that total loss is computed with the help of total expenses and effects the total capital invested in the business. On the other hand, expenses do not directly affect the capital invested in a business.
>Read Difference Between Income and Revenue
