What Is Revenue Expenditure
In layman words Revenue Expenditure can be described as “the expenses incurred in day to day running of an organization”. These expenses are recurring in nature; they are required on a daily basis to meet some business needs. We can also call them “expired costs” example being salaries paid, stationary purchased, wages paid on goods purchased etc.
These expenses are incurred on items required by the business but which are exhausted within a period of one year. The expenses which are incurred with the maintenance and service of fixed assets such as Machinery, furniture and building also come under the category of Revenue expenditure. Now let us understand something called Deferred Revenue Expenditure. It is an expense which is prepaid by the company, but receives benefit in future. E.g., insurance premium and advertisement expenses that are paid by the company at the beginning of the year.
Usually companies break their expenditure into Revenue and Capital. The balance between the two helps the company to access whether they are using the funds effectively and efficiently. For example if the company realizes that it is paying high rent to its office building which is high on revenue expenditure, the management can very well sit and decide on buying a new office space. This will cut down on high revenue expenditure and the new office building becomes a valuable asset to the company.
Let us see the following examples of revenue expenditure:
- Wages paid to factory workers.
- Interest on money borrowed.
- Expenses incurred on advertisement, postage, printing charges.
- Bad debts.
- Depreciation on fixed assets. The list goes on.
The list goes on………..
Certain Revenue expenses are deductible from tax purposes. For example a company which pays payroll taxes is given the facility to claim such amount that has been paid.
After knowing Revenue Expenditure it will not be fair enough to leave out Capital expenses, since there is a link between the two. Capital expenditure is long term expenses which are used for the future. It also does not occur again and again. A portion of the capital expenditure is shown in Trading and Profit and Loss account whereas, the whole of revenue expenditure is shown in Trading and Profit and Loss account. Revenue expenditure does not appear in the Balance Sheet.Genarally Revenue expenses has no physical expenses unlike capital expenses. For example the cost incurred on fixed asset can be seen in the sense of building, furniture etc.