The difference between an expense and an expenditure
/What is an Expense?
An expense is the reduction in value of an asset as it is used to generate revenue . If the underlying asset is to be used over a long period of time, the expense takes the form of depreciation , and is charged ratably over the useful life of the asset. If the expense is for an immediately consumed item, such as a salary , then it is usually charged to expense as incurred.
Related AccountingTools Courses
What is an Expenditure?
An expenditure is a payment or the incurrence of a liability in exchange for goods or services. Evidence of the documentation triggered by an expenditure is a sales receipt or an invoice .
Comparing Expenses and Expenditures
The key difference between an expense and an expenditure is that an expense recognizes the consumption of a cost , while an expenditure represents the disbursement of funds. An expense is usually recognized when a related sale is recognized or when the item in question has no future utility. An expenditure is usually recognized either when cash is paid out or a liability is incurred.
An additional difference is that an expense appears in the income statement , while the effect of an expenditure appears in the balance sheet , either as a reduction of cash or an increase in liabilities.
A further difference is that expenses are generally associated with the short-term operations of a business, while some expenditures are associated with the acquisition of assets that are intended to be used for a long period of time.
Examples of Expenses and Expenditures
Examples of expenses are compensation expense, utilities expense , and the cost of goods sold . Examples of expenditures are a payment to acquire a fixed asset , a payment to reduce the outstanding balance of a loan , and a payment to distribute dividends to shareholders .
As a comparative example, an organization makes an expenditure of $3,000 for a desktop computer. It then charges the computer to expense over the next three years, which results in an annual depreciation expense of $1,000.
Related Articles
The Difference Between Capital Expenditures and Revenue Expenditures
