What is meant by Cost?

Cost is the monetary amount of resources or the consideration for using the resource invested or consumed or used up. In its most simplistic form cost is monetary measurement of resource outflow due to any reason.

As cost is an information, user of information may require this information to be generated or processed as per the desire of user of such information. Due to same reason we can classify costs in number of ways. And this is sheer beauty of this concept that it can be defined in entirety from each dimension even taken alone and separately from other concepts.

This includes not only the resources actually expended but also the benefits that could have been earned but has been sacrificed in order to avail benefits from current option.

Costs can be related to activities undertaken but it does not necessarily have to have relation with activities of the business (production cost) or time (period cost) or consumption of asset or resource e.g. fine paid to make up any violation is a cost or interest paid on loan is cost as well.

Students interested in details must pay attention to the difference between cost and expense as it is important. For more detailed discussion on the difference between cost and expense please checkout our QnA What is the difference between Cost and Expense?

Summing up the discussion we must understand that cost is monetary value of resources consumed and it is a relevant measurement and will be done keeping the requirements of the user in check.



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