Expenditure
Money spent or committed to acquire goods, services or assets. An expenditure becomes an expense when its cost is used up.
In short
- An expenditure is the outlay. An expense is the cost charged against a period's profit.
- Capital expenditure becomes an asset and is depreciated. Operating expenditure is expensed when it is used.
- In a budget, expenditure includes money committed but not yet expensed.
An expenditure is a payment, or a commitment to pay, for something the business acquires: stock, a service, equipment, a building. The word describes the outlay itself. Whether it reaches the income statement right away depends on what was bought.
Expenditure versus expense
The two words are often used as synonyms, but accountants separate them. An expenditure is the act of spending. An expense is the cost that belongs to a period and reduces profit for that period. A $12,000 annual insurance premium paid in January is a $12,000 expenditure in January, but under accrual accounting it is a $1,000 expense in each month the policy covers. Until then, the unused part sits on the balance sheet as a prepaid expense.
Capital and revenue expenditure
- Capital expenditure (CapEx): spending on assets that last more than a year, such as vehicles, machinery or computers. It is recorded as an asset and expensed gradually through depreciation, or through capital cost allowance for Canadian tax.
- Revenue or operating expenditure (OpEx): spending on things used up in the normal course of business, such as rent, wages, supplies and subscriptions. It is expensed in the period it relates to.
Expenditure in budgets
In public finance and budgeting, expenditure means total spending, whether or not it has been expensed yet: government expenditure, household expenditure, a capital expenditure plan. For a business, tracking expenditure against budget means watching the cash going out and the commitments made, not only what has reached the income statement. Purchase orders and signed contracts are expenditure already committed.
Worked example
Three March expenditures
In March a bakery spends $9,000 on a new oven, $2,400 on a year of equipment insurance and $1,800 on flour used that month. All three are March expenditures, $13,200 in total. The flour is a March expense. The insurance is expensed at $200 a month over the year. The oven is a capital asset, depreciated over its useful life.