Definition of Advertising Expense
Advertising is the amount a company incurs to promote its products, brands, and image via television, radio, magazines, Internet, etc. Since the accountants cannot measure the future benefit of the advertising, the advertising costs must be reported as Advertising Expense at the time the ads are run.
A prepayment of the cost of ads that will air in the future should be recorded in a current asset account such as Prepaid Advertising. When the ad is aired, the amount must be transferred from Prepaid Advertising to Advertising Expense.
Example of Advertising as an Asset and as an Expense
Let’s assume that in December a corporation paid $15 million to prepare an ad and to book a time for it to be shown during the Super Bowl Game in early February. Until February, the $15 million is the current asset Prepaid Advertising. After the ad is shown in the Super Bowl Game, the corporation must credit Prepaid Advertising and debit Advertising Expense. This is necessary because the accountants cannot measure the sales (if any) that will occur because of the Super Bowl ad.
