Expense - Cash Flow

Cash Flow

In a cash flow statement, expenditures are divided into operating, investing, and financing expenditures.

• Operational expense – salary for employees
• Capital expenditure – buying equipment
• Financing expense – interest expense for loans and bonds

An important issue in accounting is whether a particular expenditure is classified as an expense, which is reported immediately on the business's income statement; or whether it is classified as a capital expenditure or an expenditure subject to depreciation, which is not an expense. These latter types of expenditures are reported as expenses when they are depreciated by businesses that use accrual-basis accounting, which is most large businesses and all C corporations.

The most common interpretation of whether an expense is of capital or income variety depends upon its term. Viewing an expense as a purchase helps alleviate this distinction. If, soon after the "purchase", that which was expensed holds no value then it is usually identified as an expense. If it retains value soon and long after the purchase, it will be viewed as capital with life that should be amortized/depreciated and retained on the Balance Sheet.