What is the difference between expense and loss?

An expense is a cost used up in earning revenues in a company’s main operations. Some examples of expenses include advertising expense, commission expense, rent expense, cost of goods sold, salaries expense, and so on. Expenses also include costs used up during the accounting period such as interest expense, insurance expense, and depreciation expense.

A loss is associated with a “peripheral” or “incidental” transaction. Examples of losses include the loss on the sale of an asset used in the business, loss from a lawsuit settlement, and loss from retirement of bonds. However, there are some losses that are closer to operations, such as the loss on write-down of inventory from cost to market.

The FASB’s Statement of Financial Accounting Concepts No. 6 (December 1985) discusses expenses and losses in paragraphs 80-89. You can access this concepts statement at no cost at www.FASB.org/st.

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