Cost is not expense
A cost is money spent to acquire something. It becomes an expense only when the benefit is used. Until then it sits on the balance sheet as an asset, such as inventory or equipment.
Cost → Asset (inventory, equipment) → Expense when the benefit is used
Why it matters
Paying a supplier does not reduce profit on the day of payment. Profit falls when the goods are sold or the asset is consumed. Confusing the two moments misreads both profit and cash.
Where it appears in a CFO+ model
- In purchases for stock and materials, held until sold.
- In the assets section, held until used up.
Learn the concept in the Academy
Activities where it shows up
No figures are published: a definition and a formula only.