Difference Between Expense vs Expenditure

Expense vs. Expenditure – In simple words, expenses are the costs incurred to earn revenues. At the same time, expenditure is the cost spent on purchasing or growing fixed assets.

In this article, we look at Expense vs. Expenditure in detail.

What is the Expense?

  • An expense is a 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 it becomes inexpensive when something does not cost a great deal. In the world of accounting, the word expense has a particular meaning.We can define expense as a cash remittance 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?

  • On the other hand, expenditure can be defined as the amount spent for the long-term on an asset, which gives a long-term benefit like building, furniture, plant, etcIn 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.There are two types of expenditure in accounting books: 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.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. Revenue expenditures include 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. For example, purchasing buildings, land, and plants are capital expenditure.

Expense vs. Expenditure Infographics

Here are the top 7 differences between Expense vs. Expenditure

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 organization’s fixed assets.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 moreExpenses are done by a company so that it can function properly daily. In comparison, expenditure is done by a company to establish itself to 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 buildings 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.

Conclusion

Both the terms expense and expenditure, though used widely in the accounting conceptsAccounting ConceptsAccounting concepts are the principles, assumptions, and conditions that govern accounting’s foundation. They ensure that the accounting is done in a way that the financial statements present a true and fair view.read more, differ. Expense refers to short-term costs incurred by the company. At the same time, 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 directly affect a company’s profit and loss statement and are recorded as the costs incurred to generate revenues. Expenditures do not directly affect the company’s financial statements and are not recorded.

This article has been a guide to Expense vs. Expenditure. Here we discuss the top 9 differences between Expenses and Expenditure along with infographics and a comparison table. You may also have a look at the following articles –

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