The act or process of incurring a cost for whatever reason. In general, incurrence involves the sacrifice of an economic resource available at an entity’s disposal for any of multiple reasons including production, service rendering, etc. In accrual accounting, cost incurrence takes place when a resource or asset is consumed and as a result an expense has to be recognized to reflect the fact that an entity has experienced a reduction/ decrease in available resources. In this sense, an incurred cost (or cost incurred) is a charge recorded as an obligation and needs to be paid out/ settled.
In addition to costs arising from the consumption of an asset or service, incurrence may also reflect a situation where a loss has been sustained, and as a result an economic resource will receive a hit (will be sacrificed to make it good.)
Comments