Difference between expense and expenditure

Last updated: 26.03.2016

Expense is not the same term as expenditure as well as income is not the same as receipt.

 

Expenditures (and receipts) are associated with cash movements and as such affect the entity´s cash flow.

Expenses represent consumption of inputs (material, labor etc.) in order to generate revenue. Revenues form income generated from entity´s economic activities. Expenses and revenues form the entity´s profit and loss statement and do not necessarily be expenditures and receipts. Also expenditures and receipts do not necessarily be expenses or incomes.

This is also the main reason for differences between cash flow statement and profit and loss statement.

 

A few examples to better understand the difference

  • Example of expense, which is not an expenditure
    • You attend training and the supplier issues an invoice with 30-day maturity. Costs are incurred already as of the training day, when you book debit: expense, credit: liability. The expenditure arises at the moment of payment (possibly after mentioned 30 days), when your accounting entries will be debit: liability, credit: cash-out.
    • Depreciation. Imagine that you buy a production machine. You will book it as debit: property, plant & equipment / cash-out.  At this moment, only the expenditure was outlaid, but as you capitalized the machine into assets, you have no expense. You then begin to depreciate the machine. The depreciation expense will gradually be debited over the life of the asset (several years).
  • Example of expenditure, which is not an expense
    • Deferred expense. If you pay rent in advance, expenditure will be outlaid immediately (debit: deferred expense /asset/, credit: cash-out). But according to the accrual method of accounting, the rent expense will be booked to the period to which it really relates (debit: expense, credit: deferred expense /asset/).


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