The difference between an expense and an expenditure

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What is an Expense?

An expense is the reduction in value of an asset as it is used to generate revenue. If the underlying asset is to be used over a long period of time, the expense takes the form of depreciation, and is charged ratably over the useful life of the asset. If the expense is for an immediately consumed item, such as a salary, then it is usually charged to expense as incurred.

What is an Expenditure?

An expenditure is a payment or the incurrence of a liability in exchange for goods or services. Evidence of the documentation triggered by an expenditure is a sales receipt or an invoice.

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Comparing Expenses and Expenditures

There are several key differences between expenses and expenditures, which are as follows:

  • Recognition of the item. The key difference between an expense and an expenditure is that an expense recognizes the consumption of a cost, while an expenditure represents the disbursement of funds. An expense is usually recognized when a related sale is recognized or when the item in question has no future utility. An expenditure is usually recognized either when cash is paid out or a liability is incurred.

  • Presentation of the item. An additional difference is that an expense appears in the income statement, while the effect of an expenditure appears in the balance sheet, either as a reduction of cash or an increase in liabilities.

  • Duration of the item. A further difference is that expenses are generally associated with the short-term operations of a business, while some expenditures are associated with the acquisition of assets that are intended to be used for a long period of time.

Examples of Expenses and Expenditures

Examples of expenses are compensation expense, utilities expense, and the cost of goods sold. Examples of expenditures are a payment to acquire a fixed asset, a payment to reduce the outstanding balance of a loan, and a payment to distribute dividends to shareholders.

As a comparative example, an organization makes an expenditure of $3,000 for a desktop computer. It then charges the computer to expense over the next three years, which results in an annual depreciation expense of $1,000.

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