Financial Terms
Expenditure

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Definition of Expenditure

Expenditure Image 1

Expenditure

A payment or the incurrence of a liability by an entity.



Related Terms:

Aggregate Expenditure Curve

Aggregate demand for goods and services drawn as a function of the level of national income.


Autonomous Expenditure

Elements of spending that do not vary systematically with variables such as GDP that are explained by the theory. See also exogenous expenditure.


Capital expenditures

Amount used during a particular period to acquire or improve long-term assets such as
property, plant or equipment.


capital expenditures

Refers to investments by a business in long-term
operating assets, including land and buildings, heavy machinery and
equipment, vehicles, tools, and other economic resources used in the
operations of a business. The term capital is used to emphasize that
these are relatively large amounts and that a business has to raise capital
for these expenditures from debt and equity sources.


Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against

future-period revenue.



Capitalized Expenditures

expenditures that are accounted for as assets to be amortized
against income in future periods as opposed to current-period expenses.


Exogenous Expenditure

See autonomous expenditure.


Expenditure Image 2

Planned capital expenditure program

Capital expenditure program as outlined in the corporate financial plan.


Replacement Capital Expenditures

Capital expenditures required to replace productive
capacity consumed during a reporting period.


Actual cost

The actual expenditure made to acquire an asset, which includes the supplierinvoiced
expense, plus the costs to deliver and set up the asset.


Adjusted Cash Flow Provided by Continuing Operations

Cash flow provided by operating
activities adjusted to provide a more recurring, sustainable measure. Adjustments to reported cash
provided by operating activities are made to remove such nonrecurring cash items as: the operating
component of discontinued operations, income taxes on items classified as investing or financing activities, income tax benefits from nonqualified employee stock options, the cash effects of purchases and sales of trading securities for nonfinancial firms, capitalized expenditures, and other nonrecurring cash inflows and outflows.


Aggressive Capitalization Policies

Capitalizing and reporting as assets significant portions of
expenditures, the realization of which require unduly optimistic assumptions.


appropriation

a budgeted maximum allowable expenditure


Bill and Hold Practices

Products that have been sold with an explicit agreement that delivery
will occur at a later, often yet-to-be-determined, date.
Capitalize To report an expenditure or accrual as an asset as opposed to expensing it and charging it against earnings currently.


budgeted cost

a planned expenditure


Capital

expenditures Purchases of productive long-lived assets, in particular, items of property,
plant, and equipment.


Expenditure Image 3

Capital budget

A firm's set of planned capital expenditures.


Capital Budgeting

The process of ranking and selecting investment alternatives and
capital expenditures



capitalization of costs

When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.


Capitalize

To report an expenditure or accrual as an asset as opposed to expensing it and
charging it against earnings currently.


Capitalized

Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
for items with useful lives greater than one year.


Change in Accounting Principle

A change from one generally accepted accounting principle to another generally accepted accounting principle—for example, a change from capitalizing expenditures
to expensing them. A change in accounting principle is accounted for in most instances
as a cumulative-effect–type adjustment.


Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.


cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period


Deficit

An excess of liabilities over assets, of losses over profits, or of expenditure over income.


Direct-Response Advertising

Advertising designed to elicit sales to customers who can be
shown to have responded specifically to the advertising in the past. Such costs can be capitalized
when persuasive historical evidence permits formulation of a reliable estimate of the future revenue
that can be obtained from incremental advertising expenditures.


Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.


Expensed

Charged to an expense account, fully reducing reported profit of that year, as is appropriate for
expenditures for items with useful lives under one year.



Extended Amortization Periods

Amortizing capitalized expenditures over estimated useful lives that are unduly optimistic.


Free cash flows

Cash not required for operations or for reinvestment. Often defined as earnings before
interest (often obtained from operating income line on the income statement) less capital expenditures less the
change in working capital.


Full-Cost Method

A method of accounting for petroleum exploration and development expenditures
that permits capitalization of all such expenditures, including those leading to productive
as well as nonproductive wells.


investing activities

One of the three classes of cash flows reported in the
statement of cash flows. This class includes capital expenditures for
replacing and expanding the fixed assets of a business, proceeds from
disposals of its old fixed assets, and other long-term investment activities
of a business.


Investment Spending

expenditures on capital goods including new housing. Financial ''investments" and sales of existing assets are not included.


out-of-pocket cost

a cost that is a current or near-current cash expenditure


Policy Acquisition Costs

Costs incurred by insurance companies in signing new policies, including expenditures on commissions and other selling expenses, promotion expenses, premium
taxes, and certain underwriting expenses. Refer also to customer, member, or subscriber
acquisition costs.


Prepaid expense

An expenditure that is paid for in one accounting period, but which
will not be entirely consumed until a future period. Consequently, it is carried on the
balance sheet as an asset until it is consumed.


Speculative motive

A desire to hold cash for the purpose of being in a position to exploit any attractive
investment opportunity requiring a cash expenditure that might arise.


Successful Efforts Method

A method of accounting for petroleum exploration and development
expenditures that permits capitalization of expenditures only on successful projects.



 

 

 

 

 

 

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