Incurred Cost Meaning: Definition, Management and Analysis

Every business must spend to function and grow. Accounting for those expenses is the key to maintaining transparency and having a bird’s eye view of how your Singapore business is performing.

In Singapore, accrual accounting is mandated by the Singapore Financial Reporting Standards (SFRS). Your financial reports should follow the accrual system of accounting². Incurred costs are used in accrual accounting to record expenses when your company incurs them, instead of when they are paid.¹

If you’re wondering how incurred costs can impact your business and your accounting process, this article will help clarify your doubts.

We’ll also share ways to manage and analyse your incurred costs, to help your business grow. For example, you may consider using a multi-currency account like Wise Business to let your Singapore business handle multiple currencies for international transactions while saving on unnecessary costs like hidden exchange rate markups, monthly fees, and exorbitant conversion fees.

Table of contents
Incurred cost meaning Types of incurred costs Incurred cost example Why does incurred cost matter to businesses? Differences between incurred costs and accrued costs Incurred cost FAQs

Incurred cost meaning

In accrual accounting, incurred costs refer to expenses that are recorded when they take place instead of when the expense was paid. It is calculated every month or in a fixed account period.

For example, when your company agrees to a renovation project with a contractor, you’ll incur the cost of the renovation on the day you sign the invoice. However, the actual payment may be sent to the contractor on a later date, after your finance team has processed the invoice. Incurred cost ignores this time lag, giving you a more accurate picture of your business’s spending.

Types of incurred costs

Here are the typical incurred costs for a Singapore business³:

Direct Costs

Direct costs are expenses linked to the production or delivery of a service. Examples include raw materials, wages, etc.

Indirect Costs

Indirect costs do not relate directly to the production of goods or the delivery of services. Instead, they are necessary expenses that allow the business to keep functioning. Some examples include administrative costs, utilities, maintenance costs, etc.

Fixed Costs

Fixed costs refer to expenses incurred in the running of the business. These do not change regardless of sales volume or production levels. Common examples include monthly office rental, salaries, insurance premiums, etc.

Variable Expenses

Variable costs are expenses that change with the business’s output or activities. Common examples include sales commissions, cost of material per unit of goods sold, etc.

Capital Expenses

Capital costs refer to expenses incurred to acquire a capital asset that can be used over multiple accounting periods. Examples include the purchase of vehicles, office buildings, new machines, etc.

Operating Expenses

Operating expenses are costs incurred in the day-to-day running of the business. Examples include software subscriptions, utilities, office supplies, etc.

Manufacturing Expenses

Manufacturing costs refer to the costs of producing goods. Examples include the cost of raw materials, the cost of goods and depreciation of equipment.

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Incurred cost example

Here’s a case study to help you understand how to calculate incurred costs in your business.

Let’s take a look at the expenses of a local e-commerce business, Seng Sells Pte Ltd. Here is their list of expenses for April 2025:

1. Forklift: 520 SGD, to be depreciated over 12 months
2. Salary: 16,000 SGD
3. CPF for employees: 2,720 SGD
4. Warehouse rental: 5,450 SGD
5. Utilities: 166.70 SGD
6. Cost of goods: 392,100 SGD
7. Software subscriptions (payment processing, supply chain management): 549 SGD
8. Shipping and delivery: 90,200 SGD

Here’s a quick analysis of their expenses and how we can calculate their incurred cost for April in 2025:

1. Forklift (Capital Expense): Since it will be depreciated over 12 months, its incurred cost will be 43.33 SGD for April 2025
2. Salary (Fixed cost): 16,000 SGD
3. CPF for employees (Fixed cost): 2,720 SGD
4. Warehouse rental (Fixed cost): 5,450 SGD
5. Utilities (Fixed cost): 166.70 SGD
6. Cost of goods (Variable/Manufacturing cost): Even if the goods are not sold in April, the cost has already been incurred and should be recorded for April 2025: 392,100 SGD
7. Software subscriptions (payment processing, supply chain management) (Fixed/Operating cost): 549 SGD
8. Shipping and delivery (Variable/Operating cost): 90,200 SGD

For April 2025, Seng Sells’ incurred costs would amount to:
43.33 + 16,000 + 2,720 + 5,450 + 166.70 + 392,100 + 549 = 417,029.03 SGD

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Why does incurred cost matter to businesses?

Tracking your business’s incurred costs ensures compliance in your accounting process. Incurred costs will be recorded as expenses in your income statement and as liabilities under your balance sheet.

Knowing your incurred costs also gives you an idea of your business’s expenses and raises any potential issues in cash flow management.

If your incurred costs have been on an uptrend, it is a red flag for your management to analyse costs and expenses.

Why should you analyse your incurred cost?

On top of transparent financial reporting, knowing your business’s incurred costs helps you improve your business’s expense management. It gives you an accurate and timely picture of your financial performance and obligations.

Analysing your incurred costs helps you to understand trends in your business’s expenses, forecast your cash needs, decide on realistic budgets and improve your resource and cash allocation.

Regular reviews of your expenses can highlight possible cost-saving opportunities. Here’s how a Singapore company saved over 20,000 SGD in expenses.

🚀 Novelship, a leading Singapore-born online marketplace for sneakers, apparel and collectables, realised that their payment costs had ballooned significantly as their business grew. The main culprits were fees from currency exchange and international payments which relied on services such as telegraphic transfer that were slow and expensive. Switching to Wise Business in 2021, Novelship saved over 20,000 SGD and 20 hours monthly, enjoying faster, cheaper, fuss-free payment processing! ➡️ Read how Wise Business helped Novelship grow its ecommerce business globally (and more profitably)

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Differences between incurred costs and accrued costs

An incurred cost is any expense a business becomes obligated to pay, while an accrued cost is an incurred cost that hasn't yet been paid or formally recorded.

An easy way to differentiate between them is to understand that while all accrued costs are incurred costs, not all incurred costs are accrued costs. Incurred costs that have not been paid yet would not be recognised as accrued costs. You should note that accrued costs may be referred to as paid expenses.

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Incurred cost FAQs

How to reduce business incurred costs?

Here are some practical tips to help you reduce your business’s incurred costs:

• Streamline your operations: Review your operations and processes and find ways to eliminate inefficiencies and automate repetitive tasks. Audit your workflow and review your business’s subscriptions and licenses, keeping only the essential software that continues to enable your team.
• Negotiate with suppliers: Compare rates across vendors, request bulk discounts, or negotiate for better rates if you can handle early payments.
• Optimise overhead costs: A common solution is to downsize your office space by offering hybrid or remote work options.
• Outsource strategically: Depending on your operations, consider outsourcing non-core functions or ad-hoc tasks.

What are the implications of having high incurred costs?

High incurred costs suggest that a business may have its hands tied in terms of its resource management.

It suggests business inefficiencies, limited growth flexibility, and the risk of poor cash flow should the business fail to meet revenue goals.

Hence, if you notice that your company’s incurred costs are high or on the uptrend, you should take it as a signal to review your business’s expenses.

What are the differences between committed costs and incurred costs?

Committed costs refer to future expenses your business has agreed to pay, even if the product or service has not been delivered. An example of a committed cost is a 1-year office lease you have signed in advance.

On the other hand, incurred costs are expenses that have already occurred. On the same note, an example of incurred cost would be the month’s rent on your office lease.

What are the types of incurred costs?

There are many types of incurred costs, including direct costs, indirect costs, fixed costs, variable costs and many more. These will also include operating expenses, capital expenses, and manufacturing expenses.

How to track incurred costs effectively?

Incurred costs can be tracked effectively using most accounting software, such as QuickBooks or Xero. If you’re using an accounting software with advanced features, you may need to activate accrual mode to specify incurred costs.

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Conclusion

We’ve learnt that incurred costs refer to business expenses that have already occurred. These expenses can include operations, manufacturing and capital expenses that your business needs to keep running and grow.

💡We’ve also shared some tips for reducing incurred costs. The lowest hanging fruit would be the fees and costs that frequently fly under the radar, such as conversion fees and hidden exchange rate markups when paying overseas vendors and suppliers. Singapore businesses can save on those fees and reduce their incurred costs by using Wise Business.

• Hold and manage 40+ currencies for all your international transactions
• Pay your SaaS bills and all overseas ad hoc expenses with the Wise Business card without the hefty foreign transaction fees
• Always get the mid-market rate with zero exchange rate markup
• Seamless integrations with popular accounting software
• Say goodbye to monthly fees

➡️ Open a Wise Business account today

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Sources:

1. Incurred - Definition | Corporate Finance Institute
2. Singapore Financial Reporting Standards 2025 | ACRA
3. What are the Types of Costs in Cost Accounting | Investopedia

Sources checked on: 19th May 2025