What's the Difference Between A Direct Cost And An Expense

 

A Direct Cost is related to the cost of production or it is the Cost of Goods Sold. Direct cost is also called Direct Expense in Accounting as it is incurred to produce goods or products that are sold to ultimate customers for the period. The direct cost incurred to provide main source of revenue to the business such as a company manufactures chairs, then any cost incurred in the production or manufacturing of chairs is called direct cost.

An Expense Account may or may not be related to the cost of production i.e., if it is incurred for the cost of production, then it is called direct expense or direct cost of production and if it is incurred not for running business operations, which is usually incurred for business office use, but for non operating activities which are not related to the cost of production or which are not incurred for generating main source of revenue for the business is known as indirect expense or indirect cost.

So Expenses is a wider term which covers both direct costs and indirect costs.