The Income|Outcome^® Contextuary

“What do you mean by that?”

The words 'costs' and ‘expenses' are sometimes used interchangeably. However, some companies use the word ‘cost’ to refer to items that are recorded above the Gross Profit line on the Income Statement and ‘expense' to refer to items that are recorded lower down.

     Costs & Expenses above Gross Profit:

• • • Cost of Sales (COS) (Cost of Goods Sold (COGS), Direct Cost, Variable Cost)
    • Factory Overheads and Depreciation may be recorded above Gross Profit, see Note below.

     Costs & Expenses below Gross Profit and above Operating Income:

• • • Operating Expense (OpEx, Overheads, SG&A, Fixed Costs, Indirect Costs)

     Costs & Expenses below Operating Income (EBIT):

• • • Finance Expense
    • Income Tax
    • Adjustments

Note: Some companies record Depreciation as part of COS or COGS (i.e. part of the Direct Costs); other companies record it as a line item in Operating Expenses. For companies using EBITDA, it is recorded below the EBITDA line of the Income Statement.

“What do you mean by that?”

Ask if the terms ‘cost’ and ‘expense’ have specific meaning in your company.