Advertising—Asset or Expense?

Doerhoff-Advertising-Asset-Expense

Advertising is a key communications component of marketing. Marketing and advertising activities have been around for thousands of years. For example, ancient Greek traders hired “criers” to promote their products (like today’s sign shakers, perhaps.) 

Today, we consider advertising to be the various means of promoting a company’s products, services and image through television, radio, direct mail, email and digital messaging. Marketing, the broader term, includes additional means of generating consumer interest and persuading people to buy, including such efforts as public relations, social media and events.

 

Why is Advertising Important?

Advertising creates awareness for brands and provides information to potential and existing customers. Done effectively, it makes a significant impact for consumers, businesses and society at large.

A few examples of this are: 

  • Consumers: creates awareness, delivers information, provides choice
  • Businesses: increases sales, launches new products, pushes demand, creates goodwill, drives profits
  • Society: educates people about public issues It is important to consumers, creating awareness, delivering information and providing choices.

What is an Asset? What is an Expense?

Assets are something that a company owns. Assets can be long-term such as buildings, land, vehicles and equipment. They may be short-term such as cash, accounts receivable, inventory and various investments like stocks. They may also be intangible including patents, trademarks and goodwill.

Expenses are the costs of operating a business. They are deducted from revenues to arrive at the profits made for the company. Those include the labor and material costs of producing products or services, selling and general administrative costs and the depreciation of property, building and equipment.  

Advertising is considered an expense item; part of operating expenses recorded on the income statement. In the vernacular, something of worth is often spoken of as being an “asset.” However, while advertising truly does have merit and value, from an accounting standpoint,

generally, it is treated as an expense. The exception is a logo or other long-term branding investment which might be treated as an asset.

 

What Advertising Expenses Can be Deducted?

Business advertising expenses that can be deducted from revenues include:

  • Producing and airing Television and Radio ads.
  • Preparing and running newspaper and direct mail ads and billboard campaigns.
  • Building a company website.
  • Online actions including email messaging, newsletters, pay-per-click advertising, social media advertising and SEO services.
  • Producing various materials including business cards, brochures.
  • Costs of promotional items like t-shirts, caps, and mugs.
  • Producing “wraps” for vehicles (but not driving the vehicles around town.)

Importantly, the IRS considers all business start-up costs, including advertising, as capital expenses which are deducted over time.  

 

Get Expert Accounting and Financial Assistance

Contact Doerhoff & Associates CPA, based in Jefferson City, MO for professional accounting and financial assistance that will help you achieve the business success you are striving for. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services—designed specifically to meet your needs.