What are Expenses?

An expense is an incurred cost that has been consumed in order to earn revenues. Examples of expenses are compensation expense, rent expense, the cost of goods sold, and utilities expense. In accordance with the matching principle, expenses are recognized on the income statement in the same period in which the revenues with which they are associated are recognized.

What are Losses?

A loss is a reduction in value that is not related to earning revenue. For example, a business generates a loss when it sells off machinery for a price that is lower than its carrying amount. Another example of a loss is being required to pay another party as a result of an unfavorable outcome in a lawsuit. Yet another example is a write-down in the value of an asset, such as inventory.

Comparing Expenses and Losses

There are two essential differences between expenses and losses, which are as follows:

Nature of the item. Expenses are incurred in order to generate revenues, while losses are related to essentially any other activity.
Frequency of incurrence. Expenses are incurred much more frequently than losses, and in much more transactional volume. Losses tend to be infrequent and unusual. Thus, expenses usually contribute far more to the reported profit or loss of a business than any losses that it has experienced.