Expired Cost

by AllOfUsAreLost

In cost accounting, cost has been defined as money’s value which is used for producing something which is scarce in the market. Expired cost is also a part of cost.

Expired cost means the incurred expenses at the time when a company received benefits. Expired cost is that cost which is identified as expenditure or expense. When benefits is received or consumed by a business entity from the cost then it’s termed as an expired cost. Another definition of expired cost is that it is complete loss in an asset’s value. The expense of depreciation is the best example of an expired cost. This expense is taken into use for a particular asset which has been used in the process of production and which expires after the sales of the goods.

Expired cost can be better explained with the help of an example stated below. If any particular business unit, say ABC is spending $ 10,000 for acquiring catalogs of a product, which is recorded, in the month of January as prepaid-expense. These catalogs have handed-over, in the month of March, in any particular trade-show & the marketing-expense is charged by it $ 10,000 cost. The amount $ 10,000, now becomes, in the month of March, an expired cost.

After the expense is incurred it becomes expired cost & is used totally for yielding revenue. Few revenue-cost examples are S & D expenses (selling & distribution-expenses) and cost -of -goods -sold -expense. It is not necessary that cash is required for making payment for every expense.

Even if a promise is made for doing payment in

future then it is done for obtaining profits. The cost of manufacturing is capitalized as inventory of finished-goods & when the goods are sold, these costs expire and they now become an expense.

Even factory-overhead has been treated in the form of an expired cost. This is so because, in inventory of cost -of -finished -goods, factory overheads are included. When selling & distribution-expenses aren’t included in inventory of cost -of -finished –goods, then it is regarded as expenses. Factory-machine’s depreciation brings an increment in the use of goods which is manufactured. These depreciations are written under the category work-in-progress & inventory of finished-goods. From the revenues deduction is done of selling & distribution-expenses whenever depreciation is incurred.

Unexpired cost is different from expired cost. Where, expired cost is the cost which has been already incurred, unexpired cost are those cost which has to be paid in future. Unexpired cost has been regarded as asset where as expired cost is an expense.

Expired cost is calculated as follows:

 Expired cost = Revenues – Selling & Distribution-expenses

 Where as, unexpired cost is calculated as follows:

 Unexpired cost = Asset’s historical-cost – depreciation that is accumulated

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