Importance The lack of consistent interpretation of terms 'expenses' and 'costs' in professional literature makes the study of their characteristics very important for financial accounting. Objectives The aim of the work is to substantiate the economic substance and relations of the expenses and costs categories in financial accounting. Methods The research methodology includes analysis, synthesis, comparison, grouping, and generalization of different academic views, as well as statutory regulations on financial accounting with regard to definition and application of the expenses and costs categories. Results I systematized similarities and differences of approaches to interpretation of terms 'expenses' and 'costs' by various authors. I revealed the absence in the RAS system of the costs concept definition. The study justifies the presence of identification of the expenses and costs concepts in a number of accounting regulations, as well as contradictory regulations regarding interpretation and application of the expenses and costs concepts in some accounting standards. Based on the comparison of Russian accounting regulations with the rules prescribed by international standards, the study gives reasons for significant differences in the interpretation of economic substance and relations of the expenses and costs categories in the RAS and IFRS systems. The research results have both the action-oriented and theoretical application in the sphere of financial accounting. Conclusions and Relevance I substantiated conclusions about the fundamental difference between the economic substance of the 'expenses' and 'costs' terms, the fundamental divergences of these concepts in relation to their reflection in financial statements, and their relations with the objects that characterize the financial position of an entity. I rationalize conclusions on the difference in approaches to the costs and expenses classification. As a result of the study, I offer a unique interpretation of the economic substance and relations of the expenses and costs categories in financial accounting.
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