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Recognition of Expenses (Costs)

It may be clarified that the term cost for the purpose of matching is always taken as an expired cost of expense, that is, the cost which has been used to earn the revenues. Thus the expired costs or the expenses of a period are he resources consumed or used in the creation of revenues for that period. Assets such as building, machinery, furniture etc., may be termed as unexpired costs or expenses of gone or used assets i.e., depreciation. Similarly stock in hand and the additions thereon are the costs but cost of the goods sold in an expense used to earn sales revenues. The following is the brief description of certain types of expenses (expired costs) that are used or incurred, as the case may be, to earn revenues of the given period.

(a)    Cost of goods sold: the amounts paid or to be paid in future to purchase the stock of goods sold during the year.

(b)    Wages and salaries expenses: the amounts paid or to be paid for the services of the employees who work in the office, factory, store room etc. of the firm;

(c)    The amounts paid or to be paid for certain facilities such as electricity used up in the operation of the business during the year;

(d)    Interest expenses: the amounts paid or to be paid for use of borrowed money during the year;

(e)    Expired cost: the depreciation expense resulting from the use of fixed assets during the period.

(f)    Selling cost: the amounts paid on account of commission on sales, advertising and other sales promotion methods.

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