Out-of-Pocket and Book Costs
The items of expenditure, which involve cash payments or cash transfers recurring and non-recurring are known as out-of-pocket costs. All the explicit costs such as wage, rent, interest and transport expenditure. On the contrary, there are actual business costs, which do not involve cash payments, but a provision is made for them in the books of account. These costs are taken into account while finalizing the profit and loss accounts. Such expenses are known as book costs. In a way, these are payments that the firm needs to pay itself such as depreciation allowances and unpaid interest on the businessman’s own fund.
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