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What is Revenue Expenditure?
All business entities incur expenses. There is a cost involved in every aspect of business, from starting a business to running and winding up. We look at the different terms used to address these different types of expenses involved in maintaining a business. The initial cost involved in a business, the huge investments made for land, machines, property etc. comes under capital expenditure and the cost involved in running the company comes under revenue expenditure. Revenue expenditure examples could be as simple as the cost involved in the maintenance of a machine or the cost to buy monthly office supplies. There is yet another type of pf expenditure that does not come under Capital or revenue, it is called deferred revenue expenditure.
Revenue Expenditure
Any expenses incurred during the operations, administration, selling and manufacturing of the goods are termed Revenue Expenditure. This is a term used to differentiate between capital expenditure from running cost. If you have a piece of machinery that requires monthly upkeep, the cost will be called Revenue Expenditure. It includes all costs that are needed for the successful running of a business, for example, compensations for workers and monthly tax on properties. Revenue Expenditure is recorded during a single financial year.
How does one identify Revenue Expenditure?
Type of the company – For a company involved in trading the cost to buy the goods to sell will come under revenue expenditure. For example, if a company is involved in trading printers, the cost to buy these would come under revenue expenditure whereas for other companies buying a printer would come under capital expenditure.
Repeat Occurrence – When the expense happens, on various occasions in a single bookkeeping year, then, at that point, the cost is considered as revenue expenditure.
Why – The revenue expenditure is made on buying stock to sell. The intention is not personal or office use. The cost incurred to buy raw material which in turn is used to manufacture goods for sale. Such expenses are marked as Revenue Expenditure.
Repair and Upkeep – All costs incurred as part of regular maintenance of assets should be considered as revenue expenditure. These expenses should not be used to improve the capacity or life of the assets.
Income Generation – All expenses that can be matched to the current bookkeeping year is considered an operational expense. The expenses made to aid in the revenue generation are considered revenue expenditure.
How much is spent – Capital expenses are huge as it is spent to procure high-value items. But revenue expenditure should be of low amounts and should be spent for benefits that can be enjoyed in the same financial period
Difference between Revenue Expenditure and Capital expenditure
Revenue Expenditure | Capital Expenditure |
It is the cost that is used to maintain your business consistently It considers all the expenses used for continual upkeep and maintenance costs, support expenses, and costs that are brought about by current activities It is different from the expense used to procure or purchase a resource Examples include rent, utilities, and office supplies | Capital cost or capital expenditure or Capex is the cost that is utilized to secure a capital resource This asset would be utilized to further develop by helping productivity Instances of capital consumption incorporate vehicles, PC hardware, land, apparatuses, programming, places of business |
Expenses made during a limited period of one financial year are called Revenue expenditures For instance, the standard upkeep of assets is done month to month or every quarter Revenue Expenditure is a repetitive cost that your business needs to spend each month or at regular intervals It’s anything but a one-time venture | Capital use is consumed over a period of longer time until the resource is valuable or until the resource has arrived at its finish of life It is not a recurring cost unlike a cost involved in buying an asset/machinery |
Revenue Expenditure is not mentioned in the balance sheet but is mentioned in the income statement when the expense came in | Capital expenses are shown in the cash flow statement During accounting, it will be shown in the balance sheet under fixed resources Capital use isn’t promptly charged as a cost All things being equal, it is charged throughout a significant stretch of time until you will utilize it This is a continuous cycle |
The need for revenue expenditure is to guarantee the resources, for example, machinery is working ideally and consistently These uses are utilized to support your business Albeit these uses don’t add greater capacity to the assets it is used to guarantee the proper functioning for business use | It includes extending the business and putting resources into machines and hardware that will give ROI and long-haul gain For instance, a costly machine in an assembling plant can be gained to further develop current cycles with the goal that it can add to revenue |
Examples of Revenue Expenditure
- Monthly Bills – Electricity, water
- Monthly transportation cost
- Maintenance of machines
- Cost of raw materials
- Rent paid
- Overhead expenses including administrative expenses, office utilities
- Insurance Premiums
- Taxes
- Regular repair and upkeep of assets
- Wages and salaries
Conclusion:
While the benefit of revenue expenditure is experienced during the same financial year, benefits of deferred revenue expenditure are experienced over multiple financial years. The best example of this is the cost of advertisement. While the huge expense happens in one financial year, the benefit of giving an ad is reaped only in the coming years.
