Cost vs expenses

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1. You’re on the right track! In financial terms, costs and expenses are related but distinct concepts.

   Costs

   • Definition: Costs primarily refer to the money spent directly on producing goods or services. This includes expenses like raw materials, labor directly involved in production, and utilities used in the manufacturing process.
   • Examples:
   • The price of raw materials used in a product.
   • Wages paid to factory workers who are assembling the product.

   Expenses

   • Definition: Expenses encompass a broader category of costs involved in running a business. They include all expenditures necessary to develop, sell, and manage products or services, beyond just the production costs.
   • Examples:
   • Marketing and advertising expenses to promote the product.
   • Administrative costs such as salaries for management or office rent.
   • Research and development costs for creating new products.

   Key Difference

   • Scope: Costs are more specific and refer to the production side, while expenses cover a broader range of expenditures necessary for the overall operation of the business.
   • Relationship: You can think of costs as a subset of expenses. All costs are expenses, but not all expenses are costs.

   I hope this clarifies things! Understanding this distinction can really help when analyzing financial statements.

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