Expense: Definition, Types, and How Expenses Are Recorded

Apple’s balance sheet aggregates all property, plant, and equipment into a single line. However, more information on property, plant, and equipment is often required to be reported within the notes to the financial statements. In this case, this supplementary information explains that Apple has gross PPE of $109 billion, with almost $79 billion made up of machinery, equipment, and internal-use software. Examples of expenses include rent, utilities, wages, salaries, maintenance, depreciation, insurance, and the cost of goods sold. Operating expense is deducted from revenue to arrive at operating income; the amount of profit a company earns from its direct business activities. Companies need to manage their operating expenses to ensure that they are maximizing profits; this is usually done by keeping expenses at a minimum; however, reducing expenses too much can reduce the company’s productivity.

Due to the sensitive nature of the production, Joe needs a consistent, high-quality, dependable supplier of raw materials. So, he reaches out to his distributor X, who supplies him with condensers and compressors. Also, according to the terms, he must wait for his supplies for three years.

Businesses are allowed to deduct certain expenses from taxes to help alleviate the tax burden and bulk up profits. Expenses can be defined as fixed expenses, such as rent or mortgage; those that do not change with the change in production. Expenses can also be defined as variable expenses; those that change with the change in production.

Capital Expenditure

This is the first large-scale high-voltage direct-current interconnection link between the Middle East and North Africa. To enable the electrification of Africa and reduce the carbon intensity of the energy supply, a change in the mix in energy production capacity is required. It does not merely mean an outflow of cash from the business, but it may also result in outflow or depletion of assets, transfer of property, and increase in the firm’s liabilities. The words ‘expenses’ and ‘expenditure’ are commonly used as synonyms, but there is a fine line of differences between them. While expense refers to the amount spent on the production or selling of the goods and services, so as to generate revenue, expenditure implies any type of disbursement of funds made by the enterprise. Expenditures are important in the accounting equation because they help us to determine whether a business is making enough revenue to cover costs and if their money is being used wisely.

Industrialization will also drive Africa’s energy demand, with the continent’s manufacturing output projected to grow by more than 6 percent each year until at least 2025. This is treated differently than OpEx such as the cost to fill up the vehicle’s gas tank. The tank of gas has a much shorter useful life to the company, so it is expensed immediately and treated as OpEx. The notes also explain how the property, plant, and equipment balance is reduced by accumulated depreciation balance. In this example, Apple has utilized $70.3 billion of the $109.7 billion of CapEx.

  • In his books of accounts, he will declare the arrangement as a deferred payment until he receives his shipment.
  • Fixed expenses do not change and these include rent, energy bills (electricity or water), and taxes.
  • Africa has the fastest-growing population in the world, and it is set to double by 2050 to reach more than two billion people.1“Peace, dignity and equality on a healthy planet,” United Nations, accessed June 27, 2023.
  • Conventional power, like coal, is mostly found in Morocco and South Africa, and coal-fired power plants are expected to be largely decommissioned in the next ten years in an Achieved Commitments scenario.

Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. Making capital expenditures on fixed assets can include repairing a roof (if the useful life of the roof is extended), purchasing a piece of equipment, or building a new factory. This type of financial outlay is made by companies to increase the scope of their operations or add some future economic benefit to the operation. You can also calculate capital expenditures by using data from a company’s income statement and balance sheet. On the income statement, find the amount of depreciation expense recorded for the current period.

Thus, an expenditure covers a specific point in time, while an expense may be incurred over a much longer period of time. Effectively, there is no difference between the two terms when an expenditure automatically triggers the incurrence of an expense; for example, office supplies are typically charged to expense as soon as they are procured. Conversely, the advance payment of rent is an expenditure, but does not become expense until the period has passed to which the rent payment applies. McKinsey modeling shows that if the continent’s energy mix evolves in this way, Africa’s energy carbon intensity could decrease substantially.

Government expenditure

These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘expense.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Africa has the fastest-growing population in the world, and it is set to double by 2050 to reach more than two billion people.1“Peace, dignity and equality on a healthy planet,” United Nations, accessed June 27, 2023. Meeting their needs with cost-efficient, sustainable energy sources will be vital to the continent’s socioeconomic development as well as to achieving the goals of the Paris Agreement. You use expenditure categories for budgeting, transaction controls, when you define
organization overrides, and in accounting rules and reporting.

While many West African countries have abundant supplies of natural gas, the pipeline infrastructure beyond Nigeria remains underdeveloped. This article shares our perspective on the scale of the energy capital expenditure opportunity in Africa and the nature and geographic location of the required investments. Suppose a plant is acquired for Rs. 35,00,000 on which depreciation is charged @ 10%.

Example of How to Use CapEx

Let’s say ABC Company had $7.46 billion in capital expenditures for the fiscal year compared to XYZ Corporation, which purchased PP&E worth $1.25 billion for the same fiscal year. The cash flow from operations for ABC Company and XYZ Corporation for the fiscal year was $14.51 billion and $6.88 billion respectively. Africa’s transition toward a greener energy mix presents a significant opportunity for investors seeking to play a meaningful role in supporting the move to renewables and driving development in the region.


Jim should record the building purchase in March because that’s when he legally owned the building. To record this transaction, Jim would debit the building asset account and credit the mortgage account for $500,000. It’s important to understand the difference between an expenditure and an expense. Though related, they’re actually different and have some important nuances you must know about. It is important to note that this is an industry-specific ratio and should only be compared to a ratio derived from another company that has similar CapEx requirements.

Monetary policy, on the other hand, includes a central bank’s decisions to manage the money supply to control inflation, and make sure the economy thrives. Someone who believes that fiscal policy is crucial in economic regulation is a fiscalist. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.

What Is the Difference Between Expense and Expenditure?

Add the change in PP&E to the current-period depreciation expense to arrive at the company’s current-period CapEx spending. The amount of capital expenditures a company is likely to have depends on the industry. Some of the most capital-intensive industries have the highest levels of capital expenditures, including oil exploration and production, telecommunications, manufacturing, and utility industries. Examples of expenses are compensation calculate markup 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. 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.

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