One of the basic goals of every business is to entice customers to use its products or services, thereby generating income. Advertising through various media such as TV commercials, billboard signs and online banner or text ads is a common way that businesses make potential customers aware of their offerings. While spending money on advertising can be beneficial to a business in the long term, advertising expenses themselves are not technically considered a business asset.
What is an Asset?
Defined broadly, an asset can be anything that's useful or valuable. Under such a broad definition, advertising expenses might be thought of as an asset, since attracting customers is valuable and useful. In business and finance, however, the term "asset" specifically describes possessions that have monetary value. Things such as cash on hand, balances held in bank accounts and checking accounts, real estate, shares of stock and property -- including automobiles and equipment -- are examples of assets. Expenses of any sort -- advertising expenses, labor costs, rent, taxes, insurance and others -- are never considered assets. In fact, a business must give up assets, usually cash on hand, or take on liabilities like loans to pay for advertising campaigns.
Expenses and Profit
The basic goal of every for-profit business is to make more money than it spends. A company's profit is equal to its total sales or revenue minus its total expenses for a certain period of time. Therefore, advertising expenses reduce profit at the time that they're incurred.
Purpose of Advertising
The purpose of advertising is to attract customers and increase sales in the long term. If a company spends $5,000 on advertising during a certain month, it might have lower profits than usual during that month. But if the advertisements bring in more customers over the following year, it can boost sales. If the advertising campaign boosts sales by more than $5,000, it ends up benefiting the company in the long term.
Considerations
Advertising is not likely to have a large immediate impact on sales. It takes time for advertisements to reach customers and for customers to act based on the ads they see. It can take months or years for a company to recoup advertising costs in the form of increased sale,s and in some cases, advertising may not result in enough additional sales to cover its cost.
Tags: advertising expenses, long term, cash hand