Cost incurred refers to expenses that accrue within a given period of time, which should be documented appropriately in accounting and financial records. These expenses are not necessarily paid within the time that they occur, but effective accounting records document these costs when they occur rather than when they are paid. This allows financial records for a business to properly reflect expenses that are occurring in relation to revenue made to establish actual profits. Cost incurred usually refers to the costs of doing business, such as utilities, manufacturing costs, and employee wages.
The term “cost incurred” typically refers to an expense a business is liable for paying, rather than one that is paid for immediately. One of the simplest examples of this type of expense is a utility bill charged to a particular company on a regular basis, such as a monthly charge from a phone company. While a business is operating throughout a particular month, it uses service from a phone company that bills the business on the following month. During the month of operation, the business has generated a cost incurred equal to the amount that it will be charged for the phone service.
Even though the company will pay off this expense in the following month, or even several months later depending on the phone plan the business has, it is seen as a cost incurred during the month of operation. In order to effectively record and understand how much profit a business is making, this type of cost incurred is recorded along with the revenue generated by the company for a particular month. At the end of the month, these expenses can be compared with the revenue that comes in, and the difference between these figures determines if the company is making a profit or losing money.
There are many different types of expenses that can be listed as a “cost incurred” on an accounting record. A company typically has to pay for a number of different utilities and similar services, including electricity, telephone service, Internet access, natural gas, water, garbage disposal, and sewage. Companies also tend to include wages that must be paid to employees as a cost incurred each month while doing business. A manufacturing company may need to include the costs of raw materials, repairs to machines, and other expenses for each month, while a retail business might incur vendor fees and shipping expenses.