Although the terms cost and expense are often used synonymously there is a difference between them. A cost can be an asset or an expense whereas an expense is:

Question

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An expense is the consumption or loss of resources that will result in a decrease in equity. Costs can be either assets or expenses. Therefore, option A is the correct choice. Option B is incorrect because it describes a prepaid expense. Option C is incorrect as it is too broad and covers all expenses. Option D is incorrect as some expenses may not be paid out in cash but may be accrued or deferred.

Although the Terms Cost and Expense Are Often Used Synonymously