Marketing expense is an essential expense for companies to grow and promote their products and / or services. Good marketing has become vital in today’s global competitiveness. Businesses come with different tactics for marketing their products and as with other company operations, the cost of marketing has its own budget and accounting procedures. Any cost incurred to promote a business’s goods and services is recognized as a marketing expense. This can be as low as creating a website and as large to scale promotional events.
Kinds of marketing expense:
There are many kinds of marketing tools and techniques. Following are the most common marketing expenses companies spend on.
One of the most traditional methods of marketing is creating ads and displaying them on various mediums like
- Television and radio
- Social media platforms; twitter, Facebook, Instagram etc.
- Newspapers and magazines
- Google ads
- Famous websites like shopping sites.
Printing information of the company and its products and services and distributing is also a good marketing scheme.
- Business cards
- Brochures and Pamphlets
- Posters and banners
Companies often send out promotional merchandise to attract customers and even retain current customers. During startups or launch of new products, companies hand out free samples or coupons to promote the product. Successful businesses also host promotional events in conventions to entertain a large customer pool through trade shows, etc.
- Free samples
- Coupons and special discounts
- Office supplies; bottles, stationary items, notebooks etc
- Events in malls or conventions
Almost every business has an online presence and updated technology to promote their products and services. Following marketing expenses have become essential for businesses to appeal to customers.
- Development and maintenance of website domain
- Theme creation
- Tracking tools
A company must be unique and distinguishable from its competitors in the market. Any costs incurred for the following activities are recorded as marketing expenses as well.
- Logo design
- Website design
Celebrities have a great influence on their followers which is why endorsements by their word of mouth is worth any expense. Companies can send free samples or new products for celebs to unbox and promote the products.
All kinds of expenses come under the equity umbrella as they influence the valuation of the company. Equity has a normal balance of credit which means that an increase in equity is translated as a credit while any transaction lessening the equity will be recorded as debit to the equity account. Since expense is expressed by a cash outflow, it decreases the equity of a company. Therefore, expenses are recorded as a debit. Transactions related to marketing will be debited to the marketing expense account.
Journal entries for marketing expense with examples:
The normal balance of marketing expenses is debit. Following are journal entries of marketing expenses in case of cash transaction, credit transaction and when the account is closed for the accounting period.
When cash is exchanged for marketing activities, the cash account is credited by the amount paid and the marketing expense account is debited.
- Example 1: $$$ cash paid to company A for 1000 brochures printed.
- Example 2: 500 units of free samples worth $$$ cash distributed.
- Example 3: Monthly advertising fee paid to Channel X (Television), $$$ cash
When transactions for marketing activities are done on credit meaning that cash would be paid sometime after the transaction then the accounts payable is credited by the amount due and marketing expense account is debited. In this case the marketing expense entry is done only one time for the transaction. The accounts payable is debited against cash each time payment is made until the whole amount is delivered. The account payable account will be debit translating a decrease in the account, while cash will be credited, also a decrease.
- Example 1: Purchase of 1000 business cards on credit from Company Z, worth $$$ cash.
- Example 2: $$$ cash credit paid to company Z on the order of 1000 business cards.
- Example 3: Ordered 500 brochures to be printed costing $$$ cash, $$ cash on account and $$ cash paid
Closing entries for marketing expense:
At the time of closing of books, after the creation of financial statements for the accounting period, all expense accounts are credited by their whole amount and transferred to the income summary account as a debit. The income summary account is an intermediate account which is used to close all sub accounts of equity (Drawings, revenue and expenses).
The balance of all equity sub accounts are transferred to income summary after being reported on financial statements. The balance income summary account is then transferred to the retained earnings account. If the balance of the income summary is a credit, then the retained earnings is credited showing profit while if the balance is a debit, the retained earnings account will be debited indicating loss. Following entries will be made to close the marketing expense account at the end of the accounting period assuming the income summary showed a credit balance.
Expenses are simply the cost of doing business. All expenses fall under two categories that are cost of goods sold (COGS) and cost of services (COS). Marketing expenses are cost of service as they are a form of operating expense. They are either included in the “selling and administrative expenses” section or reported as operating expenses in the income statement. The details can be expressed in notes to the financial statements.
Any cost incurred to promote a business’s products and services is recorded as a marketing expense. The normal balance of marketing expense is debit which is credited as a whole to income summary at time of closing of books for the accounting period. The marketing expense of a company can be found under the section of “selling and administrative expenses” or in the notes pertaining to operating expenses.