3 Tips to Turn Your Expenses into Assets

Table of contents

• Are Expenses Assets? Expenses Defined 
• What is an Asset?
• Expense vs. Asset: Key Differences Explained
• When Does an Expense Become an Asset?
• Recording Example: Balance Sheet
• 3 Ways to Turn Expenses Into Assets
• Accounting for Expenses—A Better Way

Key takeaways

• Understanding the differences between expenses and assets is essential to B2B economics and payment strategy. 
• It’s possible to turn expenses, also known as liabilities, into assets by being proactive with spending, prioritizing returns, and diversifying spending across the company.
• To ensure consistency in financial reporting, it’s critical to record every expense and asset appropriately and stick with either accrual or cash accounting. 

As the saying goes, it takes money to make money. But spend opens the potential for loss and risk. In a year marked by layoffs, budget cuts, and perpetual uncertainty, many businesses are fighting just to stay alive—so it’s hard for finance leaders to feel good about even the most basic expenses.

This thinking can be both prudent and foolish, depending on how you strike the balance. Spending can unlock a company’s potential for growth. The key is to view every purchase as an investment, allowing you to spend wisely.

Your spending can be an asset if you treat it as such. This means taking a strategic approach to create controls that maximize returns on each transaction, however small.

Are Expenses Assets? Expenses Defined 

Simply put, an expense is any cost a business incurs. Think rent, utilities, software, hardware, payroll—these all count as expenses, including office supplies. Properly categorized expenses lower your taxable income. 

There are two types of expenses: Operating expenses and non-operating expenses. Organizations use the first to categorize business costs. Non-operating expenses, meanwhile, cover indirect items. Legal fees, interest payments on debt, and inventory losses are all examples of non-operating costs. 

Debt, often denoted in liability accounts, is also a part of expense management. 

What Is An Asset? 

Assets are owned property that help you to generate revenue or add to your company’s financial value. Like expenses, assets can be physical or intangible. Cash, accounts receivable, and inventory are considered assets, as are brand identity and proprietary information.

Accountants often categorize assets into two types: current, or short-term, assets and fixed assets, which last longer than a year. Cash, for instance, is a current asset, but a company car is fixed.  

It’s important to note that depreciation, the value decline of a piece of machinery or building, can also be listed as an asset on a balance sheet statement. 

Expense vs Asset: Key Differences Explained

The differences between assets and expenses go beyond simple pluses and minuses on a financial statement. Assets are usually one-time purchases, and expenses are typically recurring costs. In addition, assets can be resold for cash. But these are just surface-level differences.

Assets are items you already own, and their value can be spread out over time through depreciation on the expense sheet. Even in a monthly statement, assets represent long-term gains and resources.

Expenses, however, are direct costs. They are listed on income statements and Profit and Loss (P&L) statements. You can record expenses in one of two ways: The Accrual method or the cash accounting method. Accrual accounting notes the expenses the day they occur, while the second method uses the day the payment is made.

When Does an Expense Become an Asset?

Expenses can turn into assets in some cases. The criteria for this transformation are simple:

• The expense must offer financial benefits for over a year; or
• It meets your capitalization threshold.

Large purchases such as cars, equipment, buildings, and hardware are examples of expenses that often become assets.

Recording Example: Balance Sheet

The most common record of expenses, revenue, and assets will be the balance sheet. Below is a very basic balance sheet that accounts for assets and liabilities for a small business operation. Unlike other financial statements, both sides of this equation should be the same. 

3 Ways to Turn Expenses into Assets

Profit and growth opportunities are found when you can reduce expenses and capitalize on assets. Finding ways to minimize costs or turn these purchases into assets is crucial to the financial strategy for the accounting team. 

It’s possible to do this without interfering with accurate financial reporting or misclassifying expenses.

1. Proactively guard against wasteful spending

Businesses develop expense policies for a reason: to prevent waste. But 78% of financial professionals confessed in one Teampay study that employees don’t know the company spend policy and have never read their company’s policy, which makes them susceptible to noncompliance. Even the most well-intentioned employees may still misplace receipts, forget to submit for reimbursement on time, or spend out-of-bounds without knowing it.

The best way to avoid noncompliance is to enforce your policy before it’s ever broken. With proactive policy controls, you can prevent employees from spending out-of-bounds or over budget in the first place—instead of admonishing them after that fact, once money has already gone out the door.

But how? You start by reordering your purchasing workflow. Rather than first making a purchase and then submitting an expense report or reimbursement request, employees start by obtaining the appropriate pre-approval(s) according to policy. The transaction data is collected upfront and reconciled in real-time, so Finance already has all the information it needs to close the books.

2. Prioritize spend that guarantees returns

You’ve put guardrails in place to prevent out-of-bounds spending. Now it’s time to optimize the spend that is taking place. The first step is to take stock of your current spending, specifically how much is being spent with each vendor.

Taking a holistic view of your expenses (including funds that have been allocated to a specific vendor, even if they haven’t been spent yet), eliminate duplicate and unnecessary spending, and renegotiate rates. Consider the business goal behind each purchase and reevaluate against your current strategy, as things might have changed since investments were originally made.

From there, monitor your spend in real-time. Instead of waiting until the end of each month to do a deep dive, aim for a more continuous accounting cycle that will allow you to react to changes as they occur. Only with real-time spend data can you have productive conversations with your leadership team about reallocating capital.

3. Diversify spend across the business

Eliminating unnecessary spending is an important step, but don’t stop there. Review your spend by vendor once again, this time identifying areas with high levels of spend, as well as those where you may not be currently investing.

Just as a portfolio manager diversifies investments, make sure you are investing across your business. Take a look at your entire spend portfolio. Perhaps engineering is deploying a lot of capital, but marketing is taking a more tepid approach with its spend. Does this reflect your business strategy? Are these the expenses you’d expect for a business of this type and scale?

By framing your expenses as assets, you may discover some opportunities to rebalance your investments, so to speak, as well as new avenues for capital allocation. This exercise may also shine a light on disparities in your purchasing policy, which may favor certain types of expenses over others. Updating your policy can help facilitate the kind of spending that aligns with your company's goals to maximize ROI.

Accounting For Expenses—A Better Way

Accurate financial reporting is the cornerstone of good business decisions and streamlined business operations, helping to ensure consistency across teams. Clearly recording assets and expenses isn’t just checking boxes for compliance—it can become a significant growth accelerator and protect against revenue leaks.

And it pays to be proactive.

The first and easiest step to managing expenses and creating healthier cash flow is to boost revenue. Discover how you can encourage customers to pay faster with our Accelerate Collections eBook.