Revenue Expenditure: A Comprehensive Guide with Examples and Analysis

This report provides a comprehensive overview of revenue expenditures, crucial for understanding financial accounting. It defines revenue expenditure as expenses incurred by a company that do not increase the asset's useful life or add value, unlike capital expenditures. The report distinguishes between revenue and capital expenditures, highlighting that revenue expenditures are reflected in the income statement, while capital expenditures are capitalized on the balance sheet. It offers numerous examples, including expenses related to purchasing goods, salaries, and repairs, and explains how these are essential for daily business operations and revenue generation within a specific accounting period. The report also details the breakdown of revenue expenditures, emphasizing that they do not provide future benefits, and therefore, are expensed and reported through the income statement. Finally, the report categorizes revenue expenditures into those for maintaining assets and those for generating revenue, offering a clear understanding of their purpose and impact on financial statements.

BLOG: REVENUE EXPENDITURE
WHAT ARE REVENUE EXPENDITURES?

What are Revenue Expenditures?
26th June, 2019
Behind the financial success of every business organisation, whether it is small, medium or large
is operation scale and size, revenue plays the most significant role. Without revenue, every
business not only fails to stay in the market by continuing its regular business operations but also
fails to conduct its activities related to business operations. Revenue called the life-line of every
business organisations. Besides the profit-making business organisations, revenue also stands as
the most important element for non-profit organisations too. This is because revenue is the only
element that not only accelerates an organisation's operations but also ensures its existence by
ensuring 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 or
amount of cash a company uses to bring in or earn before taking out any expenses. From the
perspective of accounting, revenue consists of the amount collected by a company from the
customers after selling products or services to them. Customers are the ultimate users of the
products and services a company uses to produce or deliver and they use to get such products or
services from the producer company in exchange of money that constitutes revenue for the
producer company. In order to ensure revenue, a company uses to incur a number of expenses or
expenditures. Expenditures, as incurred by a business organisation are classified into two
segments of expenditure, the first one is revenue expenditure and the second one is capital
expenditure.
One of the crucial elements of expenditure incurred by a company is revenue expenses or
revenue expenditures. Revenue expenditures are the extra expenses incurred by a company
because any of its asset, but they do not increase the useful life of such asset or it productivity or
add any kind of additional value to that asset. All such expenditures are considered as revenue
expenditures that are necessary for a company to incur in order to generate business revenues for
a specific accounting period and the benefits of such expenditures are not expected to spill over
to the future periods. On the other hand, capital expenditures are the kind of expenditures that
deliver benefit to a company, which incurs such expenditures, for a number of future years or
more than one accounting period. Revenue expenditures are not reflected through a company’s

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’s balance sheet.
Definition of Revenue Expenditure(s) with Example
Revenue expenditure is also known as income statement expenditure. It is a type of cost which is
related to a company’s asset and it is not capitalised because of its incapability of providing
future financial benefit to the company. In some other words, this type of expenditure refers to
the extra expense incurred by a company during a specific financial year because of a
particular asset. Revenue expenditures are not something that can add additional value to an asset
or add more useful life to it or increase its productive performance. These kinds of expenses are
not considered for adding them in the assets’ book value because of their inability to draw future
benefits for the company though the assets for which such expenditures are incurred are
something that provides future benefits for a company. Revenue expenditures are attached to
assets as well as expenditures that are made by a company for conducting its regular business
activities during a year.
Revenue expenditures are defined as all such expenditures that are incurred by a business
organisation for conducting its day to day business operations and business administration as
well as the effects of which expenditures are completely exhausted within a current accounting
period. By nature, revenue expenditures are recurring. In other words, the expenditures which are
incurred by a company for meeting its daily business requirements are called revenue
expenditures. 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 the
same accounting year when these are incurred. Revenue expenditures are also called as ‘expired
costs or expenses.’ Examples of revenue expenditures include expenses related to purchasing of
goods, postages, rent, payment of salaries, stationery purchased, traveling expenses, payment of
wages on products purchased and more.
Revenue expenditures stand as the sum of expenses that a company incurs during the production
of products or services that helps it to accelerate the revenue generation process in a particular

accounting period. A company that incurs these types of expenditures on the services or items
that are useful to it but are used-up within less than a year increases the company’s profit-making
capacity temporarily. Along with the above stated examples, revenue expenditures also include
the expenses incurred for purchasing raw material, storages as much as required for conducting
manufacturing practices in order to manufacture saleable goods or services. In also include the
expense made for maintaining fixed assets to ensure their working conditions such as repair and
maintenance expenses in relation to machinery, furniture, building, and any other fixed asset.
Following are some of the other examples of a company’s revenue expenditure
 Payment of wages to the factory workers.
 Cost of oil required for lubricating machines.
 Cost of power or electricity required for running a motor or machine.
 Bad debts.
 Repairs and maintenances related to every expense incurred for improving fixed assets.
 Cost of goods that are saleable in nature.
 Depreciation expenses related to the fixed assets utilized by a company for conducting
regular business operations of manufacturing.
 Interest on loan or borrowed money.
 Cost of petrol or diesel consumed in vehicles used in business.
 Cartage, freight, octroi duty, payment of insurance on the saleable goods, and cost of
transportation.
 Expenses related to service charges associated with motor vehicles.
 Expenses incurred in order to conduct ordinary business activities and business
administration such as printing charges, postage, insurance, rent, salaries, carriage on the
saleable goods, postage, wages related to manufacturing expenses, legal expenses,
commission, cost incurred for advertisement and free samples and more.

Breaking down of Revenue Expenditure
Revenue expenditures are all such expenditures that are necessary for generating revenues for
one specific accounting year and the benefits extracted from such expenditures are not expected
to spill over to the coming accounting year. These types of expenses are not considered for
valuing assets because they do not deliver any kind of future benefit. Here, it is required to
remember that asset is something which has the ability to provide future benefits to a company or
the individual who owned such an asset. Revenue expenditures do not offer any kind of
monetary benefit to the company and due to this reason, these kinds of expenditures are
expensed as well as reported through the company’s income statement. Due to the incapability of
providing any kind of monetary benefit to the company revenue expenditures are not being
capitalised and reported through a company’s balance sheet.
A clear example of such expenditure is the additional cost which is attached to an asset (fixed
asset) such as machinery. In a manufacturing company, there are a number of fixed assets
(machines) found which use to assist the company to continue manufacturing process. Some of
the machines are required to be properly lubricated and cleaned on a regular basis. These types
of costs do not really add value to such machine but improves its productivity and to some extent
longevity too. For keeping the equipment or machine running, these kinds of lubrication and
cleaning are necessary. In order to lubricate and clean machines, a company uses to incur money
at a regular interval which constitutes an expense for the company and such expenses are treated
as revenue expenditures. The reason behind such name of these kinds of expenditure comes from
the requirement of such expenditures i.e. to accelerate or continue the revenue generation process
or activities of a company by using such an asset.
Another common example of a cost that is non-value adding in nature is painting. A company
often found painting its machines to make them look good as due to regular use, dirt and dust
machines are found having rust. Over the years, machines such as drill presses and lathes tend to
corrode and rust. In terms of keeping them operational, a company’s managers generally
schedule these kinds of machines to be sandblasted, repainted, assembled and disassembled. The

entire modification process of these machines does not add value (not a single value) to the
machines but it is required just because of keeping them productive. These types of tasks just
maintain the integrity of machines and keep them away from rusting.
The above mentioned revenue expenditures in relation to machines stand in sharp contrast to
improvements. Improvements of machines are done by incurring expenses on them by means of
the actions like sandblast, repaint, assemble and disassemble that improve the useful life as well
as the performance of such machine actually. The actions responsible for constituting revenue
expenditures are not only required for keeping the asset productive or operational but also they
use to extend the asset’s or machine’s operational life. Improvement or betterments of an asset is
usually capitalised and then added to the cost of the respective asset on the company’s balance
sheet. After that, these kinds of betterments are depreciated over some years instead of being
expensed like the revenue expenditures immediately. This is how revenue expenditures and
capital expenditures differ from each other.
Numeric Example of Revenue Expenditure
It is assumed here, that a business organisation has incurred $100,000 as capital expenditure of
for installing high quality and highly productive machine. The installation of such new machine
needs routine repair and maintenance of $4,000 per month and this $4,000 is required to be
treated as revenue expenditure for the company. It needs to be reported by the company through
its income statement prepared on a monthly basis. Therefore, such expense must be matched
with the revenues earned by the company on a monthly basis. The cost of normal repairs and
maintenances to the pieces of pieces of machinery are also considered as revenue expenditures
since the expenditures are not able to make the machines more than they are i.e. does not able to
add any kind of value to it. Moreover, it does not extend the useful life of the machines. Due to
this, normal repairs and maintenances are also reported by a company through its income
statement as expenses incurred during an accounting period exactly when these are made.
Types of Revenue Expenditure

Revenue expenditures are the costs that are charged to expenses as soon as such costs or
expenses are incurred by a company. While doing so, the matching principle is used by a
company in order to create a link between the expense it has incurred and the revenues it has
generated during the same accounting period. It yields income statement related results in a most
accurate manner. By considering the purpose of expenditures, revenue expenditures are
categorised into two different sets of expenditures such as expenses incurred for -
 Maintaining an asset that generates revenue for a company. This kind of expenses
includes expenses on repair and maintenance because this particular types of expenses are
incurred for supporting current operations of a company only, not to extend the useful life
of the asset or not to improve it.
 Generating revenue. The expenses related to revenue generation purpose are the day-to-
day expenses a company required to spend for operating its regular business activities
like sales, payment for rent, salaries, purchase of utilities and office supplies.
Expenses that do not fall in the above two categories should not be considered as a company’s
revenue expenditures. This is because the other expenses, not belong to the above mentioned two
categories, are associated with the process of generating future revenues or monetary benefits for
a company. For instance, the amount incurred for purchasing an asset is categorised as capital
expenditure. It is charged as expense over a number of accounting periods to link the expense
incurred for purchasing such asset or the asset’s cost against more than one future accounting
periods of revenue generation. The expense incurred for purchasing the asset is called capital
expenditure. Other than this kind of capital expenditure is required to be considered as revenue
expenditure.
Moreover, by nature, revenue expenditure is also be classified in direct and indirect expenses.
Direct revenue expenditures arise from the expense incurred for purchasing raw material
required for manufacturing final products or services. The other examples of direct expenses are
wages to labour, cost of electricity and power, rent, commission, shipping cost, legal expense
and more. On the other side, indirect revenue expenditures include expenses that occur indirectly
and are generated for having a connection with selling of products or services and their

distribution. The examples of indirect expenses include depreciation on assets, repair, and
maintenance cost, etc.
Principles required to be followed for considering an expense as Revenue Expenditure
Any kind of expenditure that provides benefits to the business just for a single accounting year is
required to be considered as revenue expenditure. An expenditure that is incurred in a recurring
manner i.e. for again and again is treated as revenue expenditure e.g. expense related to repair
and maintenance of motor vehicles, heavy machinery which is done at a regular interval. The
elements of expenditures incurred for keeping a company’s or going concern’s business activities
are treated as revenue expenditures. The expenses that are responsible for reducing the net
income of a company by taking part in the company's regular operating expenses are needed to
be considered as revenue expenditures. Revenue expenditures need to be charged to a reporting
company’s expense for the current accounting period, or for shortly thereafter. These kinds of
expenditures are assumed to be made within or for a very short-term period. Revenue
expenditures do not constitute a large expense for a company like capital expenditures. However,
some large expenditures are considered as revenue expenditures if they are directly related to a
company’s sales transactions or period costs.
Key Points on Revenue Expenditures
 Revenue expenditure is an expense that occurs regularly while conducting day-to-day
business activities.
 These expenditures are incurred for short term purpose.
 These are not capitalized and shown through the balance sheet.
 Revenue expenses are reflected through a company’s income statement.
 These expenditures have recurring outlay.

 These are the benefits of the company incurring such expenses for the accounting year
only when such expenses are incurred.
 These expenses maintain the earning capacity of a company.
 These expenses are linked with the revenue receipts.