The key difference between Expense vs Expenditure is that Expense refers to the amount spent by the business organization for the ongoing operations of the business in order to ensure the generation of the revenue, whereas, the expenditure refers to the amount spent by the business organization for the purpose of purchasing the fixed assets or for increasing fixed assets value.
Difference Between Expense vs Expenditure
Expense vs. Expenditure – In simple words, expenses are the costs that incur to earn revenues. Whereas, expenditure is the cost spent on purchase or growth of fixed assets.
In this article, we look at Expense vs. Expenditure in detail.
What is the Expense?
- An expense can be defined as that cost that is paid or given in exchange for something of value. That something can be produced or services. When this product or service costs a great deal, it is expensive, and when something does not cost a great deal, it becomes inexpensive. In the world of accounting, the word expense has a particular meaning.
- We can define expense a remittance of cash from an individual or an organization to another individual or organization. In other words, an expense is a situation in which an existing asset is utilized for payment or liability happens. If we see this from the point of view of the accounting equationAccounting EquationAccounting Equation is the primary accounting principle stating that a business's total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more, expenses decrease the owner’s assets.
- International Accounting Standards Board defines expenses as the gradual reduction in economic benefits during the accounting period in the form of remittances or outward cash flows or exhaustion in the number of assets or sustains liabilities that end up in reducing the owner’s equity. So we can sum up expenses as outflows or using up of assets as part of operations of a business to generate sales/revenue.
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What is Expenditure?
- Expenditure, on the other hand, can be defined as the amount spent for the long-term on an asset, which gives a long-term benefit like building expenditure, furniture expenditure, plant expenditure, etc.
- In the case of expenditure, the benefits are achieved over the long-term period, which is usually more than one year. The use of term expenditure relates to the purchase of fixed assets.
- In accounting books, there are two types of expenditure- Capex definitionCapex DefinitionCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more and Revenue expenditure. Capital expenditure is the one that is done to purchase or increase the value of fixed assetFixed AssetFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read mores.
- For example, the purchase of buildings, land, plants is capital expenditure. Revenue expenditureRevenue ExpenditureRevenue expenditure refers to those costs incurred during regular business operations by the organization while availing its benefits in the same period. Such operating expenses include rent, utility expenses, salary, insurance expenses, etc.read more is the expenditure whose benefit will be received after the whole accounting year. Examples of revenue expenditures are the cost of goods soldCost Of Goods SoldThe cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company.read more or repairs and maintenance expenses.
Expense vs. Expenditure Infographics
Here are the top 7 differences between Expense vs. Expenditure
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Expense vs. Expenditure Key Differences
The critical differences between Expense vs. Expenditure are as follows –
- While both these terms are used in accounting to refer to the costs done by the organization, they are different. Expenses are those costs that incur to earn revenues. In contrast, expenditures are those costs that incur to purchase or increase the value of the fixed assets of the organization.
- Expenses incur for a short-term basis, and expenditures incur for a long-term period.
- Expenses affect the financial statements of the company. Latter records them as the costs incurred to earn revenues. Financial statements don’t record expenditures. Expenditures generally don’t affect the financial statements of the company.Financial Statements Of The Company.Financial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more
- Expenses are done by a company so that it can function properly daily. In comparison, expenditure is done by a company to establish itself so that it can start proper operations.
- Expenses are generally anticipated by the company and take place multiple times. At the same time, expenditures are not so much anticipated costs and generally occurs once in the period.
- Examples of expenses are salary paid, rent, etc. Examples of expenditures are payments made to purchase new land or building for business, equipment, etc.
Expense vs. Expenditure Head to Head Differences
Now, let’s have a look at the head to head differences between Expense vs. Expenditure.
| Basis | Expense | Expenditure |
|---|---|---|
| Meaning of the terms | Expenses are those costs that incur to earn revenues. | Expenditure is the cost that is spent on the purchase or growth of fixed assets. |
| Effect on Financial Statement | Expense affects the Profit and Loss statement of a company as they appear as costs incurred to earn revenue. | Expenditure does not have any implication on the financial statements and is not usually recorded. |
| Term | An expense is generally for short-term costs of the organization. | Expenditure is usually the long-term costs of the organization. |
| A number of times suffered. | An expense incurs multiple times. | Expenditure is incurred once in a period. |
| Purpose of spending | An expense is done for general expenses. Expenses are done by an organization so that it can run on a day to day basis. | Expenditure is done for Capital and Revenue expenditure. Expenditures are done by an organization to establish it so that it can operate. |
| Examples | Salary paid, rent paid, wages, etc. are expenses. | Purchase of new land, purchase of new plants for business, etc. are examples. |
| Expectation | Expenses are high and very frequently expected. | Expenditures are not expected in that frequent manner. |
Conclusion
Both the terms expense and expenditure, though used widely in the accounting concepts, differ from each other. Expense refers to short-term costs incurred by the company. Whereas, expenditure refers to the long-term costs incurred by the company for its establishment and operations. Both the terms are valuable in the accounting equation since both have specific contributions and meanings. In comparison, expenses have a direct effect on the profit and loss statement of a company and record as the costs incurred to generate revenues. Expenditures do not directly affect the financial statements of the company and are not recorded.
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