Advertising is an asset or an expense? Comment, please.
Advertising, from an accounting perspective, is an expense. It can be an asset to your business figuratively, due to it bringing in more income than what it costs to run the ads, but in the literal sense, advertising is a cost your business must incur for regular operations and growth. Let’s discuss more on that.
To understand better, let’s first separately understand assets and expenses.
In accounting, any resource that has economic value and which a business owns with a possibility that it will provide benefit in the future is an asset. Examples include long-term investments, buildings, office goods, etc. On the other hand, money spent or cost incurred in an organization’s efforts to generate revenue is an expense. An advertisement is an operating expense which attributes to the cost of products that a business sells. Whereas, the advertising managers see it as a potential Return On Investment (ROI). It is a recurring expenditure, but when ROI is positive and consistent, people see it as an asset.
Keep in mind, I do not mean that literally. Bottom line: advertising is an expense. When people call advertising an asset, they refer to well-performing ads, and they aren’t saying it literally, in the same way, that buildings, cash, patents, etc. are assets. Assets don’t consistently incur a cost, whereas advertising generally does.
Advertising is always going to cost something, even if it’s just time, in the case of zero-budget grassroots marketing. For a business, if an advertisement meets its intent and makes customers buy a product, then it is profitable, and if you’re willing to stretch the meaning a little, an asset.
That said, I do think online marketing has made things less clearly defined. Consider, for instance, a website for a business, which is filled with articles that are SEO optimized and draw traffic. It might cost something to get those articles written, and they qualify as advertising, but is that really an expense? Once they’re paid for and published, that’s it, but they continue to exist and draw in customers, despite not costing anything to stay online. So in that sense, I guess you could argue that some advertising, particularly online types like content marketing on a business-owned website, are assets.
It is undeniable that advertisements help a business. Aside from converting prospects into customers, they give personality to a business. Seeing the benefits of ads, it would be wise to consider them as assets at least figuratively. Surprisingly many businesses consider them just an expense. By minimizing the importance of ads or not advertising at all, some managers and startup owners proudly beat the drum of saving their company’s money. I strongly disagree with that.
After noting such a negative response, it made me imagine a hypothetical situation of a world where there are no ads. I have penned down my thoughts in the form of a post: Welcome to a World Without Advertising. After discussing that hypothetical world, it discusses the importance of advertisements. I think reading that post in the context of your question might give more nuance to this answer.
In conclusion, advertising is an expense, as well as a figurative asset. Initially, it’s an expense, but as soon as its monetary results exceed the expense amount, it turns into an asset for all intents and purposes.