EXPENDITURE VS EXPENSES

Post a Comment

If you're familiar with accounting, You're probably aware that the terms expenses and expenditure have different meanings in accounting.

In accounting, an expense is a reduction in the value of an asset as it is used to generate revenue. By contrast, expenditure is a cost incurred to acquire the asset.

To illustrate, consider the case of a corporation that has recently purchased equipment. Because it represents the cost of acquiring the item, this is an expenditure.

However, since the equipment is used on a regular basis, its value depreciates, resulting in an annual expense in the form of depreciation. These depreciation expenses will be recorded on the income statement.

As another example, Suppose James limited spends #100 on stamps. The expenditure on stamps will be #100.

However, if at the end of the year, James limited still has a #20 stamp left, then the stamp expanse for business is #80 because only #80 of the stamp has been consumed of the #100.

To illustrate again, let's imagine a company pays its landlord #400,000 for two years of rent. This #400,000 constitute an expenditure.

 At the end of the first year, the company will have only spent #200,000 on rent.

Thus, the rent expense for the first year will be #200,000 and the remaining #200,000 will be charged to the balance sheet as prepaid expenses.

From the foregoing, we can conclude that expenditure is incurred when an asset is acquired or service is received while an expense is incurred when an asset is used up or service consumed.

To conclude, the major differences between expenditure and expense are as follows:

1. Expenditure is the cost of purchasing an item, whereas expense is the cost of using an asset to generate revenue.

2. Expenses are charged to the income statement whereas expenditures are not charged to the income statement or the balance sheet

However, after accumulated expenses have been deducted, what is left of expenditure is charged to the balance sheet.

3. Expenses are usually connected with a single accounting period, whereas expenditures are frequently associated with many accounting periods.

Stated differently, expenses are short-term whereas expenditures are long term.

Help us grow our readership by sharing this post

Related Posts

Post a Comment

Subscribe Our Newsletter