Costs vs Expenses

Problem

What's the difference between "costs" and "expenses"?

Solution

Many people use them to mean about the same thing.

There is a distinction between "job costing" and "accounting" however, and in Goldenseal we usually use "costs" to apply to job costing, and "expenses" to apply to accounting.

Here are some differences between job costing and accounting:

Precision

Accounting is precise-- with everything right to the penny.

Job costing may use estimates to arrive at a more accurate (but less precise) amount. For example, labor costs will usually include "burden", which is an estimate of employer taxes, insurance, benefits, vacations etc. NOTE-- it's theoretically possible to do job costing to the penny, but it would require splitting tax payments into so many small bits that it would be waaay too much work!

Labor Costs

For job costing, we use the Labor Hours record, and add in an estimated burden percentage, or actual payroll costs for that pay period.

For the actual accounting payments, there will be a pay check paid to the employee, plus many other payments to tax agencies, insurance companies, benefit providers etc. There will also be vacation and holiday pay (which usually is job costed in with the regular hours as part of "burden").

Equipment Costs

For job costing, we use the Equipment Hours record, with a Job Cost Rate that calculates an approximate cost per hour, day or week.

The actual accounting payments will be spread out all over the place. There's probably a Material Purchase for the original purchase of the item, plus more purchases for parts, fuel and consumables. There may also be payroll costs for maintenance, and other expenses for repairs. It would be very difficult to split them for job costing to all the jobs where the equipment was used.

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Entered 7/24/06 by Casey.