Revenue Expenditure

Meaning of Revenue Expenditure

Revenue expenditure refers to those expenditures which are incurred during normal business operation by the company, benefit of which will be received in the same period and the example of which includes rent expenses, utility expenses, salary expenses, insurance expenses, commission expenses, manufacturing expenses, legal expenses, postage and printing expenses, etc.

Explanation

Revenue expenditure is the sum of the expense that the business incurs in the production of goods and services, which helps for revenue generation of the company in an accounting period.

Examples of Revenue Expenditure

Revenue expensesRevenue ExpensesRevenue expenditure refers to those costs incurred during regular business operations by the organization while availing its benefits in the same period. Such operating expenses include rent, utility expenses, salary, insurance expenses, etc.read more are expenses incurred by the business in the daily working of the business and the effect of which will completely be utilized within the current accounting year in which it incurred. These costs are recurring in nature and do not form the part of the fixed asset costFixed Asset CostFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more. Thus they are shown in the statement of income of the year in which they are incurred.

Revenue Expenditure

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Revenue Expenditure (wallstreetmojo.com)

Practical Examples

Case Study #1

Consider a company XYZ Ltd manufacturing and selling the packets of the pen. The company spends each year for various expenditures such as manufacturing of pens, salaries to employees, Utility bills, repairs and maintenance, acquisition of the assets, etc. It is not sure about which expenditure to be treated as revenue expenditure.

Case Study #2

Company ABC Ltd. started the business of manufacturing and selling bakery items in the market. For that purpose, it buys a machine so that the bakery items can be produced. The owner of the company is arguing that it should be treated as revenue Expenditure. How should it be treated?

Types of Revenue Expenditure

They are of two types –

  • Direct Expense
  • Indirect Expense

#1- Direct Expense

The direct expenseThe Direct ExpenseDirect costs are costs incurred by an organization while performing its core business activity and can be attributed directly in the production cost, such as raw material costs, wages paid to factory staff, power & fuel expenses in a factory, and so on, but do not include indirect costs such as advertisement costs, administrative costs, etc.read more is expense occur from the production of raw material to final goods and service. The direct expense example is wages of labor, shipping cost, power, and electricity bill cost, rent, commission, legal expense, etc.

#2- Indirect Expense

The indirect expense is expenses occur indirectly; they are generated in connection with the selling of goods and services and its distribution. Indirect expense examplesIndirect Expense ExamplesIndirect expenses are the general costs incurred for running business operations and management in any enterprise. In simple terms, when you want to buy grocery from a supermarket, the transportation cost to get you to the supermarket and back is the indirect expenses.read more are machinery, depreciation, wages, etc.

Conclusion

Revenue expenditure is the expenditure incurred by the company during its ordinary course of business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more. Here the benefit will also be received in the same accounting period in which expenses incurred, and it shows as the expense in the income statement of the company. Generally, such expenditures will be divided into two categories, i.e., expenses on maintenance of revenue-generating assets and the expenses on things used for generating the revenue of the business.

It includes the spending by the company on the expense, which will match with the reported revenues on the statement of income of the current year. It is charged at the expense in the statement of incomeStatement Of IncomeThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more as soon as the cost is incurred as by this business is using the accounting principle of matching for linking the expense incurred with the revenues generated in the same reporting period. With this concept, the income statement results will give more accurate results to the user of the income statement of the company.

This article has been a guide to Revenue Expenditure and its meaning. Here we discuss the list of examples of the revenue expenditure along with its types and detailed explanation. You can learn more about accounting from the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *