Investing in a Software: Expense or Expenditure?

One of the most common questions that I am asked when dealing with prospects is - Do we consider the amount spent on acquiring a software as an Expenditure or an Expense?

To answer this question, we first need to understand the difference between the two terms. As per Accounting Principles,

Expenditures, on the other hand, are spends which yield economic benefits by solving a major business problem. The benefits are not used entirely in the year in which they are bought. The money spent as an expenditure helps in building assets for the organization. For e.g. the money spent on purchasing a machinery for your company or other capital expenditure like land, etc. are expenditures.

Expenses are spends which will yield you benefits only during the year that they are brought in. They decrease in value and increase liability. For e.g. the money spent on the repair of the same machinery by the company is an expense.

In my opinion, investing in a software is an expenditure as you can build a tangible asset for the organization. It is used for more than a specified period and you reap the benefits during that period and even after. It helps in saving time as well as money, and so is an asset to the organization.

As a matter of fact, if you invest in a recruitment software, it can be considered as an expenditure as it makes your recruitment processes faster and cost effective. It helps you do away with mundane tasks like collating candidate data from various excels sheets, spending time on generating MIS, time spent on updating information of candidate / vendors etc … thus giving you a better ROI and TCO.