Advertising Expense
An advertising expense is the cost incurred by a business to promote its products or services through various media channels such as television, radio, print, online, or social media platforms. This expense is categorized as an operating expense and is typically recorded on the income statement within the selling, general, and administrative (SG&A) expenses section.
Advertising expenses can include costs related to designing and creating promotional materials, purchasing advertising space or time, hiring advertising agencies, and other related expenses. These expenses are considered necessary for businesses to increase brand awareness, attract new customers, and maintain or increase market share. In accounting, advertising expenses are usually recognized in the period in which they are incurred, and they can be tracked separately to evaluate the effectiveness of advertising campaigns.
Example of an Advertising Expense
Let’s say a clothing company, Trendy Outfits, decides to launch a new advertising campaign to promote their latest summer collection. To execute the campaign, Trendy Outfits incurs the following costs:
- Hiring an advertising agency to design and develop the creative content for the campaign: $10,000
- Purchasing advertising space in a popular fashion magazine: $5,000
- Running sponsored posts on social media platforms like Instagram and Facebook: $3,000
- Producing and airing a TV commercial: $15,000
In this example, the total advertising expense for Trendy Outfits’ summer collection campaign would be $33,000 ($10,000 + $5,000 + $3,000 + $15,000). This expense would be recorded on the company’s income statement under the selling, general, and administrative (SG&A) expenses section during the period in which the campaign was executed.
