Expenditure, Expenses
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Expenditure is the outflow of money for the purpose of making various payments. Although expenditure and expenses are used synonymously, there is a thin line of difference. Expenses are a subset of expenditures. Expenses are payments for made specifically for consuming goods and services, while expenditure includes payments made to buy assets. For instance, when a business acquires a machine, it would be called expenditure, while when the business pays for electricity for running the machine, this would be called an expense.
While expenses are borne for satisfying consumption needs, expenditure is made to facilitate future income generation. Expenditure can be classified as:
Table of Contents
Personal Expenditure
Personal expenditure can be classified into:
- Consumption: It includes expenses on purchasing goods and services, making payments, paying rent and travel expenses. These expenses are borne for present consumption.
- Investment and savings: These include the amount spent on various investment options and savings schemes. This may include contributing to retirement schemes, purchasing insurance and acquiring property. People make investments to gain from interest earnings and capital appreciation in the future.
Business Expenditure
Business expenditure can be grouped as:
- Capital expenditure: This is borne to acquire assets such as land, plant and machinery as well as to upgrade them. Capital expenditure is long term in nature and involves substantial funds.
- Revenue expenditure: This is the amount spent on routine business activities. This includes the payment of wages, salaries, rent, electricity and the costs incurred on purchasing raw materials. These expenses are short term in nature and the funds involved are smaller.
Government Expenditure
Government expenditure can be broadly divided into:
- Government consumption: This is the amount spent on goods and services for present consumption. It also includes the payment of salaries to government employees and federal agents.
- Government investment: This includes the amount spent on research and development. It also includes the expenditure on developing infrastructure, such as roads, educational institutes and hospitals. These expenses yield benefits in the future.
- Transfer payments: These are payments to citizens of a country, such as social security, disability insurance and disaster assistance.
If spending follows proper planning, it helps in yielding benefits in the long run. Hence, it is vital to monitor expenditure patterns at regular intervals to avoid unnecessary expenses.
