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 those costs which are incurred to earn revenues whereas, expenditure is the cost which is 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 which 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 a liability happens. If we see this from the point of view of accounting equation expenses decrease the owner’s assets.
- International Accounting Standards Board defines expenses as the gradual reduction in economic benefits during the accounting time 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.
What is Expenditure?
- Expenditure, on the other hand, can be defined as the amount spent for a 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 term expenditure is used related to purchase of fixed assets.
- In accounting books, there are two types of expenditure- Capital expenditure and Revenue expenditure. Capital expenditure is the one which is done to purchase or increase the value of fixed assets.
- For example purchase of building, land, plant is termed as capital expenditure. Revenue expenditure is the expenditure whose benefit will be received after the complete accounting year. Examples of revenue expenditures are cost of goods sold 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 key differences between Expense vs Expenditure are as follows –
- While both the terms – Expense vs expenditure are used in accounting to refer to the costs done by the organization but both are different. Expenses are those costs which are incurred to earn revenues whereas expenditures are those costs which are incurred to purchase or increase the value of the fixed assets of the organization.
- Expenses are those which are incurred for a short-term basis and expenditures are incurred for a long-term period.
- Expenses have an effect on the financial statements of the company as they are recorded as the costs incurred to earn revenues. Expenditures are not recorded in the financial statements and generally, they don’t have any effect on the financial statements of the company.
- Expenses are done by a company so that it can function properly on a daily basis whereas expenditure is done by a company to establish itself so that can start proper operations.
- Expenses are generally anticipated by the company and take place multiple times whereas expenditures are not so much anticipated costs and generally occurs once in the time period.
- Examples of expense are salary paid, rent etc. Examples of expenditure 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 which are incurred to earn revenues. | Expenditure is the cost which is spent on 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 long-term costs of the organization. | ||
| Number of times suffered | An expense is incurred multiple times. | Expenditure is incurred once in a time 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 plant 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 vs expenditure though used widely in the accounting concepts differ from each other. While expense refers to short-term costs incurred by the company expenditures refer 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. While expense has a direct effect on the profit and loss statement of a company and is recorded as the costs incurred to generate revenues expenditure does not directly affect the financial statements of the company and are not recorded.
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