A cost that an entity has taken on (incurred) in the ordinary course of business, whether in relation to its core or non-core operations, its relationship with the sector in which it operates, or its broader business environment. An entity incurs a cost or expense when an asset or resource, available at its disposal, is consumed, and the entity becomes liable for. Even costs arising on an accrual basis, that is, purchases of assets and services on credit are also perceived as incurred cost/ cost incurred. Cost incurred may include direct, indirect, production, operating expenses that are associated with running the business operations. Additionally, it may also include all costs incurred prior to set-up such as feasibility studies and licensing, etc.

These costs are recorded in the debit side of the profit and loss account (statement of income).