What is Consumed Cost?

A consumed cost is an expenditure for which the associated utility has been used. When a cost has been consumed, it is reclassified from being an asset to being an expense. This means that the cost is shifted from the balance sheet to the income statement. For example, a company purchases merchandise for $300. The $300 is initially classified as an inventory asset and recorded on the company's balance sheet. The company then sells the merchandise, at which point the cost has been consumed; the asset is now reclassified as an expense, and is shifted out of the balance sheet and onto the income statement, within the cost of goods sold classification.

Some types of costs are consumed so quickly that they never initially appear on the balance sheet. For example, if a business pays a salary to its marketing manager, this cost is immediately classified as a current period expense, and so is charged to expense as incurred.