Expenses and Losses in CFA® Level 1 Exam: Understanding the Distinction

Understanding the Distinction between Expenses and Losses

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Question

Which of the following best describes the distinction between expenses and losses?

Answers

A. Losses result from peripheral or incidental transactions, whereas expenses result from ongoing major or central operations of the entity.

B. Losses are extraordinary charges, whereas expenses are ordinary charges.

C. Losses are reported net of related tax effect, whereas expenses are not reported net of tax.

D. Losses are material items, whereas expenses are immaterial items.

E. None of these answers.

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Explanations

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A. B. C. D. E.

Expenses are outflows or other using up of assets or incurrence of liabilities from delivering or producing goods, services or key operations. Losses are defined as decreases in equity (net assets) except those that result from expenses or distributions to owners.

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