What is Advertising Expense?

Advertising expense is the cost a business incurs to promote its products, services, or brand to potential customers. It includes spending on media such as television, radio, online platforms, social media, and print, as well as costs for design, production, and sponsorships. In accounting, it is treated as an operating expense and recorded on the income statement in the period it is incurred. The purpose of advertising expense is to generate awareness, increase sales, and support long-term growth, even though the benefits may not be immediately measurable.

Classification of Advertising Expense

Advertising expense is classified as an operating expense. It is not part of the cost of goods sold. If a company pays advertising fees in advance, these fees are first recorded as a prepaid expense, which is a current asset. Then, when the related advertising activities occur, these funds are shifted over to the advertising expense account, resulting in their recognition as an expense.

Presentation of Advertising Expense

The periodic amount of advertising expense is reported within the selling, general and administrative expenses section of the income statement. If a business decides to only report expenses in aggregate for specific departments, then advertising expense would be included in the Marketing Department line item. The following exhibit shows a possible line item presentation for advertising expense within an income statement.