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.
Contents of this post
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.
These are the examples of 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.
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.
There are two types of Revenue Expenditures-
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.
You can know how it is different from capital expenditure throughout the given table
S.NO | Revenue Expenditure | Capital Expenditure |
---|---|---|
1 | The Revenue Expenditures are expenses that relate to the operations of the business during an accounting period. | Capital Expenditure is expenses that generate enduring benefits and helps in revenue generation over more than one accounting period. |
2 | short term benefits | Long term benefits |
3 | Recurring in Nature | Non recurring in Nature |
4 | Not available for capitalization | Available for capitalization |
5 | It does not enhance the value of existing assets | It enhances the value of existing assets |
6 | Does not have a physical presence | Has a physical presence except for intangible assets |
7 | It always appears in the income statement | It appears as assets in the balance sheet and some portion in the income statement |
8 | It reduces business revenue | Do not reduce business revenue |
9 | Examples- Rent, Electricity bills, salary, etc. | Examples- software, building, vehicle, etc. |
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.
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.
These are the examples which are called revenue expenditures-
Answers are
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