What does Expenditure Mean?

by Devra Gartenstein ; Updated March 01, 2018
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Money flows in and out of your business, and any time it flows out to purchase new assets, improve existing ones or reduce a liability, the transaction is recorded as an expenditure. Disbursements or payments such as buying or upgrading machinery, distribution to owners or paying off bank loans are just a few of the expenditures needed to operate your business.

Expenditures Versus Expenses

Expenditure means the use of cash or cash equivalents to purchase assets, pay down debt or fund operations. Some expenditures can be expenses but not every expenditure is a deductible expense.

Reported on the income statement, business expenses are costs that have expired, are used up or were necessary to earn revenues during a specific period. Expenses are deductible purchases such as rent, utilities, taxes, licenses, professional fees, office supplies, advertising, commissions, repairs, insurance, materials, labor and cost of goods sold.

Accounting and tax liability conventions sometimes stagger the ways you make and record payments relative to when the funds actually change hands. The exchange of funds is an expenditure, while the bookkeeping entry that records the transaction as part of your profit and loss statement represents the deductible expense.

Financing and Depreciation

When you finance business operations, you're allowed to deduct the sums you spend even if you're paying for these purchases with borrowed funds. But you aren't allowed to deduct payments of principal on business loans. If you borrow $1,000 to pay rent during a month when cash is tight, the rent expense is deducted during the current month. If you pay back the $1,000 the following month when cash is more plentiful, you are not allowed to deduct this payment a second time. The payment of principal is an expenditure because the money leaves your business account, but it is not an expense because the expense was already recorded when you paid your rent.

Similarly, when you buy a large piece of equipment that your business will use over time, you typically make the expenditure all at once by writing a check for the item. However, when recording the purchase as a deductible expense, you must depreciate it or spread the deduction over the number of years you expect the asset to be in service. For example, if your restaurant buys an oven that you expect to use for 10 years, the entire purchase amount is an expenditure if you pay for the oven in a single payment. But you can only record one-tenth of the oven's cost as a deductible expense during each year that your business uses it.

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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