Expenditures

Expenditures are very important from book keeping and accounting point of view. It is payment which is given by a person who gets either services or goods from other person. Suppose, Ram gets the electricity facility from state govt. electricity board. For these services, company sends him the electricity bill of Rs. 5000. This Rs. 5000 is expenditure for Ram. If Ram does not pay it on its payment date, it will become his liability.

We can classify the expenditures or expenses with many ways. Expenditures may be capital expenditures or revenue expenditures. Expenditures may be direct expenditures or indirect expenditures.

Accounting Treatment of Expenditures

* All revenue expenditures are shown in the debit side of profit and loss account. When a new revenue expenditure is paid, its entry is passed in journal by debit this expenses and credit either bank or cash account.

* All capital expenditures are shown in the Asset side of company's balance sheet.

####  Important things that you must remember  ####

1. Expenditures reduce the owner's equity or capital.

2. Expenditures may reduce the current asset. Suppose, we buy the fixed asset with cash, it will reduce the company's cash. In other words, expenditures may outflow of cash of company.

3. Expenditures may increase the current or fixed liabilities. Suppose, we did not pay rent of company's building on its payment date, this liability will be shown as outstanding rent in company's balance sheet.

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