What is Revenue Expenditure?
Revenue expenditure is the sum of the expense that the business incurs on the production of goods and services which helps for revenue generation of the company in an accounting period.
- It is of primarily two types – one is related to the cost of sales and other is related to operating expense. Cost of sale is the expense done on acquiring of goods or service which need to sale in the market and operating expense is an expense which needs to be done to run business and its operations properly.
- These expense to be recorded in the same time period when revenue is generated on produced of goods or service (matching principle)
Explanation of Revenue Expenditure
Let us take a revenue expenditure example of a printing press. The amount spent each year to print brochures, cards, book etc will be categorized as revenue expenditure. In addition, any cost of repair of the printing machines will also account as revenue expenditure. However, any amount spent to upgrade the printing press (so that it can print more pages, better quality etc or increase its useful life) will be classified as capital expenditure.
Revenue Expenditure Examples
There are multiple examples of revenue expenditures some of them are as follows:-
- Service charges to machinery, vehicles etc.
- Petrol, diesel consumption.
- Bad Debt Expense
- Repair cost of machinery, vehicles etc.
- Maintenance cost of machinery, vehicles etc.
- Painting on machinery to avoid corrosion.
- Oil for lubrication of machinery.
- Power or electricity required for the functioning of machinery.
- Wages paid to labors.
- Insurance premium paid on machinery, vehicles etc.
Types of Revenue Expenditure
Revenue expenditures are of two types they are as follows:-
- Direct Expense
- Indirect Expense
#1- Direct Expense
The direct expense is expense occur from the production of raw material to final goods and service. The direct expense example is wages of labour, shipping cost, power and electricity bill cost, rent, commission, legal expense etc.
#2- Indirect Expense
The indirect expense is expense occur indirectly they are generated in connection with the selling of goods and service and its distribution. Indirect expense examples are machinery, depreciation, wages etc.
Revenue expenditure is incurred for the following purpose –
- It incurred in the normal course of business like expense incurred in the selling of product and in manufacturing, administrative expense etc.
- This is reflected in trading and profit and loss account.
- For maintaining fixed assets in working order. For example repair of machinery, depreciation etc.
- Expenditure on goods purchased for resale.
- The expense for the proper functioning of the business.
Key Points on Revenue Expenditure
- It is expense occur regularly in day to day activity of the business.
- It is for the short term.
- It does not capitalize.
- It reflects in the income statement of the company.
- It has a recurring outlay.
- It is a benefit only for the current accounting year.
- It maintains earning capacity.
- It matches with revenue receipt.
This has been a guide to Revenue Expenditure its definition and its meaning. Here we discuss revenue expenditure types (direct/indirect) along with practical examples. You can learn more about accounting with the following articles –