Loss and expense are both terms used in accounting to denote decreases in an entity's economic resources, but they differ in their nature and implications:
Loss :
Definition : A loss is a decrease in the net assets or equity of a business entity resulting from transactions or events outside of its normal operating activities. It typically arises from non-operational activities such as the sale of non-current assets at a loss, impairment of assets, or losses from natural disasters.
Nature : Losses are usually one-time or non-recurring events and are not part of the entity's regular business operations. They represent reductions in the overall wealth or financial position of the entity.
Recognition : Losses are typically recorded in the income statement under separate categories such as "loss on sale of assets" or "impairment loss" and are deducted from revenues to calculate net income. They directly reduce the owner's equity or shareholders' equity.
Expense :
Definition : An expense is the cost incurred by a business entity in its normal operating activities to generate revenue. Expenses are incurred to maintain and support the ongoing operations of the business, such as salaries, rent, utilities, and supplies.
Nature : Expenses are recurring costs necessary to generate revenue and sustain the entity's day-to-day operations. They are considered part of the entity's operating activities and are incurred regularly over specific accounting periods.
Recognition : Expenses are recorded in the income statement as part of the cost of goods sold or operating expenses. They are matched with revenues earned during the same accounting period according to the matching principle. Expenses decrease the net income of the entity and consequently reduce the owner's equity or shareholders' equity.
