What is Advertising Expense?

Advertising expense is a general ledger account in which is stored the consumed amount of advertising costs. The balance in this account is reset to zero at the end of each fiscal year, so that it can be populated in the next year with new advertising expenses.

Classification of Advertising Expense

Advertising expense is classified as an operating expense. It is not part of the cost of goods sold. If a company pays advertising fees in advance, these fees are first recorded as a prepaid expense, which is a current asset. Then, when the related advertising activities occur, these funds are shifted over to the advertising expense account, resulting in their recognition as an expense.

Presentation of Advertising Expense

The periodic amount of advertising expense is reported within the selling, general and administrative expenses section of the income statement. If a business decides to only report expenses in aggregate for specific departments, then advertising expense would be included in the Marketing Department line item. The following exhibit shows a possible line item presentation for advertising expense within an income statement.