Costs are the money a business spends.
Liabilities are the money that a business owes (needs to pay out).
Assets are what a business owns/ possesses.
Remember for the exam:
Costs
Costs are the expenses incurred when producing goods or services, such as the Cost of materials, labour, and rent. There are three types of costs:
Start-up costs: These are the expenses you have when you first start a business, like buying a building or equipment.
Fixed costs: These are regular expenses that don’t change much, like rent or salaries. For example, if you own a retail store, your rent will be the same whether you sell 10 items or 100 items.
Variable costs: These are expenses that change depending on how much you sell, like materials or commission. For example, if you own a manufacturing company, your cost of raw materials will increase if you produce more products.
Examples
| Start-up Costs | Fixed Costs | Variable Costs |
| Business plan Market research Legal and accounting fees Equipment and supplies Rent or lease/ purchase Insurance Marketing and advertising | Rent Property taxes Insurance Utilities Salaries Loan repayments Equipment leases Marketing and advertising | Cost of goods sold (COGS) (cost to make a Product/service) Direct labor Direct materials Commissions Shipping Warehousing Inventory Returns Warranty costs |
Liabilities
Liabilities are the financial obligations that a business or individual owes to others, such as debts, loans, and taxes owed.
Current liabilities: These are debts that need to be paid within a year, like bills or taxes.
Non-current liabilities (long-term): These are debts that don’t need to be paid back for over a year, like loans or mortgages.
Assets
Assets are the resources that a business or individual owns, such as Cash, property, and equipment, which can be used to generate income or add value.
Current assets: These are things a business owns that can easily be turned into cash, like money in a bank account or inventory.
Non-current assets (fixed): These are things a business owns that are more permanent, like buildings or machinery.
