ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Accounting terms: Expense versus expenditure

Updated on July 7, 2011
Source

In everyday language, persons may use the terms “expense” and “expenditure” interchangeably.

Accounting has its own concepts and definitions, and there exists a relationship between the two terms, but they are not synonyms. The difference is not merely academic either.

The tax consequences and treatment of expenses and capital expenditure in the financial statements differ. There are also some other definitive characteristics of the two concepts that help to identify the relationship between them.

Capital versus revenue expenditure

The relationship between expense and expenditure is that the term "expense" refers to a particular form of expenditure – revenue expenditure. Expenditure is the generic term used for any outflows. This includes administrative expenses, general overheads and finance charges. Capital expenditure refers to capital outflows that lead to new asset acquisition or improvements in the earning capacity of a non-current asset. Therefore, an expense is a capital outlay that is fully utilized in the accounting period it was incurred in.

Benefit period

Revenue expenditure is used to acquire current assets and tradable assets, like production inputs, employee wages and insurance costs. Non-current assets include machines and buildings. Therefore, capital expenditure can be traced to multiple accounting periods, while expenses can only be traced to a single accounting period.

The accruals basis of accounting is the foundation for classification of expenses versus capital expenditure. In cash accounting, benefits from capital outlay are distributed within the period in which the cost in incurred. However, capital expenditure costs are spread out through concepts of amortization and depreciation. Linked to this attribute is that expenses recur frequently, while expenditure is less frequent, non-recurrent or irregular.

Expenses and capital assets

Non-current assets are typically associated with capital expenditure, but expenses can be attributed to them. For instance, cost of repairs, maintenance and depreciation are expenses (within one accounting period).

However, this can be a bit tricky, since improvements or upgrades that increase efficiency or capacity, for example, are forms of expenditure. However, if work done on capital assets does not augment their earning capacity, they should be classified as expenses.

Tax liability

Since expenses are linked to revenue within a period to establish income for the accounting period, expenses reduce a business’ chargeable income. However, capital expenditure nor is not tax deductible. Instead, taxes are charged against a business’ net profits, but not its gross profits.

Representation in financial statements

As mentioned above, revenue expenditure dealt with in the Statement of Comprehensive Income, whereas capital expenditure is included in the Statement of Financial position. Expenses affect income, while capital expenditure affects assets and liabilities.

Conclusion

In financial accounting, the relationship between expenses and expenditure is very significant. Improper classification of these can affect the business’ income and financial position as well. As such, proper classification and treatment ensures that the principles of fair and consistent presentation are upheld.

Comments

Submit a Comment

  • SpiffyD profile imageAUTHOR

    SpiffyD 

    7 years ago from The Caribbean

    I appreciate the comment Senior. I identified the type of expenditure explicitly this time. Capital expenditure is what I was supposed to be getting at. Thanks for pointing that out.

  • TheSenior profile image

    TheSenior 

    7 years ago

    I do and don't agree with you. An expenditure is any outlay of capital for what ever purpose it is required - whether for payment of inventory, bills, or for purpose of asstes.

    To say that an expenditure is only for the purchase of an asset is not taught in school, least not the schools I went to.

    Capital assets have nothing to do with expenses. Costs are what it takes you to have a business, expenses are the result of being in business, assets are purchased for the production of revenue. Direct labor is not an expense, it is a Cost; indirect labor such as admin is an expense being that it does not figure in the direct production of goods to sell.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)