What is Expenditure? Meaning, Features, and More.

हिन्दी में पढ़ें:

The word business might sound small but its meaning is quite wide and it requires many things to run it, like products, manpower, machinery and other things, etc. and the cost incurred in buying all these things is called expenditure in business and with the help of this the business is able to carry out its day to day activities. In simple words, a business is formed to transact a product, and the costs incurred for transacting a product are called expenditure.

Expenditure are the most important part of any business because without its business is not able to do its business activity as product is required to do business activities and also there are different types of expenditure to sell the product, like transportation charges, manpower charges, storage charges, office charges, marketing charges, etc. Note: Whatever cost is incurred in the transaction of a product, to compensate for that cost, it is added to the price of the product or covered with the sales.

What is Expenditure?

Expenditure is a cost of buying something or running a business, and it includes the purchase of goods, services, assets, etc., salaries, office expenses, interest paid, depreciation, insurance, marketing expenses, etc. It is recorded in various books, and it is also shown in financial statements like trading account, profit and loss account, balance sheet, etc. It is classified into various parts, but mainly two parts: revenue expenditure and capital expenditure.

• Revenue expenditure includes all the expenditure that is incurred for the business activity, and it is also commonly known as expenses, and it is of recurring nature which is usually repeated within a year or in simple words it is a short-term expenditure which is incurred to generate revenue. Revenue expenditure is shown in the income statement, such as: Manufacturing Account, Trading Account, Profit and Loss Account, etc.
• Capital expenditure includes all the expenditure which helps in carrying out business activity like buying assets, etc and it is regular non-recurring in nature or in simple words it is the expenditure other than revenue expenditure and it is a long-term expenditure which does not occur regularly. Capital expenditure is shown in the positional statement, such as: Balance Sheet, etc.

Different accounts/books are maintained to manage the expenditure incurred in the business, such as Purchase Account, Assets Account, Depreciation Account, Salary Account, Wages Account, Rent Account, Interest Account, Insurance Account, Electricity Account, and Other Expenditure Account. For example, all purchases are recorded in the Purchase Account, all asset purchases are recorded in the Assets Account, similarly, all salaries are recorded in the Salary Account, etc. Recording the expenditure in different accounts/books helps in preparing various reports, statements, etc.

Features of Expenditure

Following are the features of expenditure:

1. Cost:

Expenditure is the cost of buying something that helps a business to operate, and it is very important for any organization as it is an essential element in the transaction of a product. For example, purchasing products, buying assets, paying salaries, paying insurance, paying transport fare, paying electricity bills, paying wages, paying rent, etc., all these are expenditures, and all these involve cost, and this cost is also known as the cost of running a business.

2. Mandatory:

Expenditure is an essential element for any business because without it, the business is not able to carry out its core activity. For example, the main purpose of a business is to sell a product and earn revenue from it, but a business will be able to sell the product only when it has the product available first, and this comes to the business through purchases, and purchases are an expenditure. Note: There are many other expenditures that occur for sales and purchases, and some types of expenses may not be essential.

3. Income Generate:

Expenditure helps in generating income because income is generated primarily from product transactions, which require having the product first, and for which the product has to be purchased, and purchasing the product is called an expenditure. Expenditure not only includes buying the product but also includes all the costs involved in completing the transaction and running the business.

4. Classified:

Expenditure is classified into various parts according to their features, concepts, etc., but mainly it is classified into two parts such as: Revenue Expenditure and Capital Expenditure. If we define in simple words then revenue expenditure means short-term expenditure which is done repeatedly, like buying goods, salary, rent, insurance, wages, etc., and on the other hand, capital expenditure means long-term expenditure which is done occasionally, like buying machinery, buying furniture, and buying other assets, etc.

5. Recorded in The Books:

Expenditure is recorded in various accounts/books as it helps in preparing various accounting reports such as manufacturing account, trading account, profit and loss account, balance sheet, cash flow statement, etc., which helps the management to know the business status, performance, etc., and take appropriate decisions accordingly. Note: Revenue expenditure is recorded in the income statement, and capital expenditure is recorded in the positional statement.

Read Also:

• What is the Expense? Meaning, Features, and More.
• Classification of Expenses
• What are Financial Statements? Meaning, Features, and More.
• What are Subsidiary Books? Meaning, Features, and More.

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