What Are the Differences Between Expenditures vs. Expenses?
By Indeed Editorial Team
Published June 9, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
If you want to assess a company's financial health, looking at its expenditures and expenses can provide valuable information. Expenses and expenditures are the costs associated with operating a business and producing its product or services. Learning more about the two types of costs and how they're different can help you make more informed business decisions. In this article, we explain what expenditures vs. expenses are, discuss their main differences, and offer examples of both.
Expenditures vs. expenses
To help you understand what expenditures vs. expenses are and the differences between them, consider the following explanation of each:
What are expenditures?
Expenditures are the payments companies make as a result of long-term spending. They typically provide businesses and organizations with long-term benefits, such as investments and purchases of fixed assets. Two key types of expenditures that organizations report in their financial records include capital expenditures and revenue expenditures. Here's an explanation of each:
Capital expenditures include the spending a company does to increase the value of its current fixed assets or to purchase additional assets with the goal of future revenue generation. For example, a company might purchase additional buildings or land to increase the value of its physical property. Several more examples of capital expenditures include:
Computer hardware and software
Office fixtures, furniture, and equipment
Intangible assets such as licenses or certifications
Equipment or machinery for production
Company vehicles or transportation needs
Revenue expenditures typically become the expenses a company incurs as a result of purchases or spending that is necessary for the company to maintain revenue generation on a short-term basis. These types of expenditures include purchases that are not fixed assets. A business records its revenue expenditures during the same reporting period that it earns revenue. Additionally, an organization typically records both long- and short-term revenue expenditures, including equipment repair and maintenance costs, subscription or ongoing license fees, and operational expenses, during regular reporting periods.
What are expenses?
Expenses are the costs that organizations incur as a result of day-to-day business activities and may sometimes include revenue expenditures companies incur to support ongoing operations. For instance, one key expense that a business or organization has is the cost of goods sold, or the cost of what it takes to produce, market, and sell a product. Companies report their expenses on an income statement, as the costs companies incur as expenses relate directly to earning revenue. Several types of expenses businesses generally report on an income statement include:
Cost of goods sold: These are the expenses a company incurs due to producing goods or providing services.
Employee salary: Employee income is an expense businesses are responsible for if they operate with more than a single proprietor.
Employee commissions: Sales commission is a type of expense companies may incur if they provide a commission-based salary.
Accrued monthly interest: Companies accrue interest on various operational expenses, including interest on loans, mortgage payments, and other credits that a company pays regularly to remain in operation.
Mortgage, rent, or utilities: Storefronts, warehouses, and other physical businesses are typically responsible for paying rent or mortgage on a property or building. Utilities like electricity and water supplies are also types of expenses that most organizations incur.
What's the difference between expenditures and expenses?
While expenditures and expenses hold some similarities, they have distinct differences, such as the following:
Frequency or duration of spending
One of the main differences between expenditures and expenses is how frequently companies spend money on these costs. Companies typically incur the cost of expenses, such as ordering raw materials, paying employee salaries, and making mortgage payments, daily or monthly. Since expenditures are typically larger, long-term costs, such as purchasing new equipment, companies may make one-time payments towards them each year.
Expectation of future spending
Companies spend funds on expenditures to increase the future value of their current assets or make an investment to add to the growth of their future revenue. This means a company's future expectation of growth or increased value is a distinguishing factor between expenditures and expenses. This is because expenses only include costs that companies incur during a current reporting period rather than as a means of adding to future growth and profit.
Long-term versus short-term spending
Companies tend to make long-term purchases or investments only once within an accounting year, and these expenditures can add to long-term growth and value over time. Expenses encompass the short-term spending a company does to earn revenue during the current period. While companies expect to continue earning revenue over time, the expenses companies are responsible for on a daily, weekly, and monthly basis are more short-term than expenditures.
Costs versus assets
Another major difference between expenses and expenditures is that expenses generally refer to costs while expenditures are typically assets, either purchasing new assets or adding to the long-term value of current assets. Businesses report many of their expenses as costs for maintaining the ability to produce goods or provide services, including both operational and non-operational expenses. Businesses typically accumulate expenditures as assets over time.
Income sheet statement reporting
Both expenses and expenditures affect a company's financial records but in different ways. Companies typically include expenses on each monthly financial record. The record they include these expenses in is called an income statement, also known as a profit-and-loss statement. An income statement reflects a company's profitability as it includes information about the business' revenue, expenses, gains, losses, cost of goods sold, and gross profit.
Recording expenses in an income statement allows companies to track the impact these costs have on their daily operations and net profit. Companies typically only record expenditures in their end-of-year statement, as they don't affect the company's profit and loss.
Balance sheet statement reporting
While companies typically record their expenses on their income sheet, they record their expenditures on a balance sheet. A balance sheet reflects the company's fiscal health as it includes information about its liabilities, assets, and shareholder equity. Investors typically assess a company's balance sheet to determine whether investing in the business is a good decision.
The final financial statement most companies use is a cash flow statement. This statement includes information about both expenditures and expenses. Cash flow statements typically summarize where a company's money is going by separating it into three categories, investment activities, operating activities, and investment activities. This means a cash flow statement is one similarity that expenditures and expenses share.
Purposes or reasons for spending
Companies have different reasons for spending money on expenses and expenditures. Businesses typically decide to spend money on expenditures, such as stocks or securities, for long-term growth. They spend money on expenses to maintain the day-to-day operations of the business.
Examples of expenditures and expenses
To help you better understand the differences between expenditures and expenses, here's an example of the costs a restaurant may incur:
Edward's Kitchen rents its commercial space for $3,000 a month and pays $800 to insure it. The company spends $25,000 each month paying its 10 employees and an additional $5,000 paying for their benefits. Edward's Kitchen spends $4,000 to $5,000 per month on ingredients to produce their dishes for customers. For utilities, including hydro, internet, and telephone, the company pays $600 a month. This means the company's monthly expenses are usually $38,400 to $39,400 depending on the number of raw materials it purchases.
Edward's Kitchen has plenty of equipment, such as stoves, ovens, blenders, microwaves, and refrigerators. The owner also has office equipment, such as a computer, desk, and telephone. The dining area has 50 tables and 200 chairs. There are also three computers with restaurant management software that servers use to input orders. The restaurant also offers delivery service with its own company car. The owner estimates that he spent $150,000 on these expenditures when he first opened the restaurant. It has only been open for two years, so he hasn't purchased any additional materials yet.
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