What are the Revenue Expenditures in Accounting

Revenue Expenditures-This is an important type of expense. By this article, you are going to understand all about Revenue Expenditures such as definition, examples, identification, calculation, types, and more faqs related to Revenue Expenditures in accounting terms.

What are the Revenue Expenditures?

The Revenue Expenditures are expenses that relate to the operations of the business of an accounting period or to the revenue earned during the period or the items of expenditure, benefits of which do not extend beyond that period. Revenue expenditures are shown in the profit and loss account as their benefits are for one accounting period means in which they are incurred.

What are the features of Revenue Expenditure?

1. The Revenue Expenditures are expenses that relate to the operations of the business during an accounting period.
2. short term benefits
3. Not available for capitalization
4. Recurring in Nature
5. It does not enhance the value of existing assets
6. Does not have a physical presence
7. It always appears in the income statement
8. It reduces business revenue
9. Examples- Rent, Electricity bills, salary, etc.

What are the examples of Revenue Expenditures?

These are the examples of Revenue Expenditures

1. Depreciation on fixed assets.
2. Expenditures incurred on office and administrative and selling and distribution departments (not covered above) in the normal course of business such as
   1. salaries,
   2. rent,
   3. telephone expenses,
   4. electricity,
   5. postage,
   6. advertisement,
   7. traveling expenses,
   8. commission to salesmen.
3. Expenditures incurred on non-operating expenses and losses, For example,
   1. interest on loan taken after the commencement of commercial production,
   2. loss by theft, loss by fire are revenue expenditures.
4. Expenditure incurred to maintain the existing efficiency or the earning capacity is of revenue type.
5. Expenditure incurred by an enterprise to discharge itself from recurring liability is of a revenue nature. For example, a lump sum amount paid to a pensioner by the employer is revenue expenditure.
6. Expenditure incurred for protecting the business, For example,
   1. the amount spent on a propaganda campaign to oppose the threatened nationalization of the industry is of a revenue nature.
7. Expenditure incurred for the purpose of acquiring goods purchased for resale, consumable items, etc. For example,
   1. purchase of raw material in the case of manufacturing units and
   2. purchase of merchandise meant for the purpose of resale.
8. Expenditures are incurred on other direct expenses, such as
   1. expenses for production and
   2. purchase of goods such as wages, power, freight, etc.
9. Expenditure incurred for maintaining fixed assets in working order is revenue expenditure. For example, the amount spent on repairs and renewals is revenue expenditure.

How do you identify Revenue Expenditures?

We can know how to identify a Revenue expenditure through some examples

Example 1 -Rs. 5,000 paid for the rent of the month.

Solution-Rs. 5,000 paid for the rent of the month. is revenue expenditure. This is an expense for the office administration in the normal course of business activities.

Example 2-10000 interest @5% paid on loan taken from Ravi Tyagi.

Solution-Rs. 10,000 interest paid to Ravi Tyagi on the loan taken is a revenue expenditure cause it is an expenditure incurred on non-operating expenses and losses.

How do you calculate Revenue Expenditures?

you can understand how you can calculate Revenue Expenditures through the given examples

Example 1 -Rent of Rs. 5,000 paid for monthly.

Solution-Rs. 60000 (5000* 12 month) is revenue expenditure for the year. This is an expense for the office administration in the normal course of business activities.

Example 2-10000 interest @5% paid monthly on loan taken from Ravi Tyagi.

Solution-Here 120000 Rs (Rs. 10,000 * 12 month ) is yearly revenue expenditure as interest paid to Ravi Tyagi on the loan taken cause it is an expenditure incurred on non-operating expenses and losses.

What are the types of Revenue Expenditures?

There are two types of Revenue Expenditures-

1. Direct expenses and
2. Indirect expense

1. Direct expenses are those costs that are incurred when goods and services are in the process of being produced. The costs that are incurred during the day-to-day operations that take place in the business are also direct expenses. For manufacturing companies, examples of direct expenses include the costs that are incurred for the conversion of raw materials to finished products or goods. Direct expenses also include costs such as electricity used during the production, wages paid to workers, legal expenses, rent, shipping-related costs, and freight charges.

2. Indirect expenses are the second type of revenue expenditure. These types of expenses are usually incurred when the finished goods and services are being sold and distributed. These expenses include taxes, salaries for employees, depreciation, and interest among others. Indirect expenses also include repairs and maintenance costs. Although these costs aren’t directly linked to the finished products, they are required to ensure the proper functioning of the asset which in turn supports the proper functioning of the business.

How Revenue Expenditure is different from capital expenditure?

You can know how it is different from capital expenditure throughout the given table

faqs on Revenue Expenditures

What is the definition of Revenue Expenditure?

Revenue expenditure is referred to as the expenditure incurred by an organization to manage the day-to-day functions of a business, which include employee wages, inventory, rent, electricity, insurance, stationery, postage, and taxes.

What are Revenue Expenditures as per income tax?

Revenue expenditures are short-term expenses which are used in the current period or typically within one year. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business.

Which receipts are called Revenue Expenditure?

These are the examples which are called revenue expenditures-

1. Depreciation on fixed assets.
2. Expenditures incurred on office and administrative and selling and distribution departments (not covered above) in the normal course of business such as
   1. salaries,
   2. rent,
   3. telephone expenses,
   4. electricity,
   5. postage,
   6. advertisement,
   7. traveling expenses,
   8. commission to salesmen.
3. Expenditures incurred on non-operating expenses and losses, For example,
   1. interest on loan taken after the commencement of commercial production,
   2. loss by theft, loss by fire are revenue expenditures.
4. Expenditure incurred to maintain the existing efficiency or the earning capacity is of revenue type.
5. Expenditure incurred by an enterprise to discharge itself from recurring liability is of a revenue nature. For example, a lump sum amount paid to a pensioner by the employer is revenue expenditure.
6. Expenditure incurred for protecting the business, For example,
   1. the amount spent on a propaganda campaign to oppose the threatened nationalization of the industry is of a revenue nature.
7. Expenditure incurred for the purpose of acquiring goods purchased for resale, consumable items, etc. For example,
   1. purchase of raw material in the case of manufacturing units and
   2. purchase of merchandise meant for the purpose of resale.
8. Expenditures are incurred on other direct expenses, such as
   1. expenses for production and
   2. purchase of goods such as wages, power, freight, etc.
9. Expenditure incurred for maintaining fixed assets in working order is revenue expenditure. For example, the amount spent on repairs and renewals is revenue expenditure.

Which one is a Revenue Expenditures?

1. 10,000 spent as traveling expenses of the directors on trips abroad for the purchase of capital assets.
2. 2000 Monthly rent paid for the office.
3. Amount spent on the demolition of building to construct a bigger building on the same site.
4. Insurance claim received on account of machinery damaged by fire.

Answers are

1. Capital expenditure.
2. Revenue expenditure.
3. Capital expenditure.
4. Capital receipt.

Find the nature of the Receipt

Q1-Audit fee of 3,000 paid to Ram & co. is
(a) Capital receipt
(b) Revenue expenditure
(c) Capital expenditures

Ans. (b) Revenue expenditure

Q2-5000 Rs paid as Office expenses to Shyam.
(a) Capital receipt
(b) Revenue expenditure
(c) Capital expenditures

Ans. (b) Revenue expenditure

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Mayur Kumar

An Accountant, GSTP, GST blogger, Website Creator, SEO Builder & Co-founder of the website https://gstportalindia.in for the help of GST Taxpayers of India. Having a perfect accounting experience of more than 10 years in a Private Ltd Company.

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