Expenditure

Contents:

• When do expenses arise?


• Effort and operational service provision


• Expenses - Definition & Explanation – Summary

Expenditures are all expenses incurred on use of goods and services. The expenses are always periodized.

Expenses arise in a company through the "value-based consumption of goods and services". So, when a company removes materials from the warehouse and delivers them to production, it's an expense. Expenses influence the company's success.

Examples of expenses

1. Wages/salaries


2. Control


3. Energy / Water (consumption)

When do expenses arise?

In accounting, the expenses are practically a superordinate term, which always refers to the total assets of a company. Accordingly, this is understood to mean the assessed consumption of goods, whereby a specific billing period is used for this purpose. Expenses include all reductions in operating net assets that did not result from a payment of capital to the owners of the company.

It should be noted that expenses are always prioritized. For example, a company today can buy a machine for 1 million euros, which will then be used for 10 years. Accordingly, an issue of 1 million euros has arisen, but no expenses of 1 million euros. For the acquisition costs are distributed over the useful life and depreciated accordingly. Each individual depreciation then represents an expense.

Effort and operational service provision

Every company has a specific business purpose. For example, a furniture manufacturer produces furniture and a baker sells sandwiches. However, there may also be expenses that do not arise directly from business operations (neutral expenses). For example, a company may make donations to charitable associations, which is considered an expense but would not be included in the income statement.

Even extraordinary expenses, which arise only once and unforeseen, are not to be recorded as costs. For example, it may be uninsured disaster damage or theft. In the context of cost and activity accounting, the recorded expenses must, therefore, be analyzed and characterized accordingly as neutral or operational. Only then it is ultimately possible to determine an exact operating result.

Expenses - Definition & Explanation - Summary

Expenses are reductions in the net worth of a company

They can arise from both external and operational incidents

By contrast, costs always arise due to the business purpose itself