Revenue Expenditure: Matching Principle and Accounting Consequences


Added on  2019-09-25

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What are Revenue Expenditures?26thJune, 2019Behind the financial success of every business organisation, whether it is small, medium or largeis operation scale and size, revenue plays the most significant role. Without revenue, everybusiness not only fails to stay in the market by continuing its regular business operations but alsofails to conduct its activities related to business operations. Revenue called the life-line of everybusiness organisations. Besides the profit-making business organisations, revenue also stands asthe most important element for non-profit organisations too. This is because revenue is the onlyelement that not only accelerates an organisation's operations but also ensures its existence byensuring the movement of its organisational activities on a regular basis. Revenue also referred to sales for the profit-making business organizations. It is the volume oramount of cash a company uses to bring in or earn before taking out any expenses. From theperspective of accounting, revenue consists of the amount collected by a company from thecustomers after selling products or services to them. Customers are the ultimate users of theproducts and services a company uses to produce or deliver and they use to get such products orservices from the producer company in exchange of money that constitutes revenue for theproducer company. In order to ensure revenue, a company uses to incur a number of expenses orexpenditures. Expenditures, as incurred by a business organisation are classified into twosegments of expenditure, the first one is revenue expenditure and the second one is capitalexpenditure. One of the crucial elements of expenditure incurred by a company is revenue expenses orrevenue expenditures. Revenue expenditures are the extra expenses incurred by a companybecause any of itsasset, but they do not increase the useful life of such asset or it productivity oradd any kind of additional value to that asset. All such expenditures are considered as revenueexpenditures that are necessary for a company to incur in order to generate business revenues fora specific accounting period and the benefits of such expenditures are not expected to spill overto the future periods. On the other hand, capital expenditures are the kind of expenditures thatdeliver benefit to a company, which incurs such expenditures, for a number of future years ormore than one accounting period. Revenue expenditures are not reflected through a company’s
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balance sheet but are reflected through its income statement. Unlike the revenue expenditures,those are expensed out in the particular financial period exactly in which they are incurred,capital expenditures are capitalised on the company’sbalance sheet.Definition of Revenue Expenditure(s) with ExampleRevenue expenditure is also known as income statement expenditure. It is a type of cost which isrelated to a company’s asset and it is notcapitalisedbecause of its incapability of providingfuture financial benefit to the company. In some other words, this type of expenditure refers tothe extra expense incurred by a company during a specific financial year because of aparticularasset. Revenue expenditures are not something that can add additional value to an assetor add more useful life to it or increase its productive performance. These kinds of expenses arenot considered for adding them in the assets’ book value because of their inability to draw futurebenefits for the company though the assets for which such expenditures are incurred aresomething that provides future benefits for a company. Revenue expenditures are attached toassets as well as expenditures that are made by a company for conducting its regular businessactivities during a year. Revenue expenditures are defined as all such expenditures that are incurred by a businessorganisation for conducting its day to day business operations and business administration aswell as the effects of which expenditures are completely exhausted within a current accountingperiod. By nature, revenue expenditures are recurring. In other words, the expenditures which areincurred by a company for meeting its daily business requirements are called revenueexpenditures. These expenditures impose a short-term effect on a company and its net income.Thus, the benefits related to these kinds of expenditures are enjoyed by a company within thesame accounting year when these are incurred. Revenue expenditures are also called as ‘expiredcosts or expenses.’ Examples of revenue expenditures include expenses related to purchasing ofgoods, postages, rent, payment of salaries, stationery purchased, traveling expenses, payment ofwages on products purchased and more. Revenue expenditures stand as the sum of expenses that a company incurs during the productionof products or services that helps it to accelerate the revenue generation process in a particular
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