In accounting terminology revenue expenditure is termed as the amount that is expensed instantly. The revenue expenditure is coordinated with the revenue generated for the current period of time. The routine repairs of the production plant or of any other equipment are an example of revenue expenditure as they are directly added to a cash account such as the account of repair and maintenance expense. Every kind of the repair even the repairs that do not add value to the asset or do not improve the working condition of the asset are also termed as revenue expenditure. Other types of revenue expenditure are the expenses made by the organization to purchase floating assets. The example of the floating assets is the assets that are purchased to resale on a better value to gain profit. Assets that are purchased to be transformed into saleable goods are also come under the banner of floating assets.
Other examples of the revenue expenditure are the expenses made to carry out day to day operations of an organization for example staff salaries, payment of the property rent, interest payments, tax payment and expenses related to postage and other minor operations etc. in other words we can say that revenue expenditure is related to the expense that are required to run day to day running of the business.
Revenue expenditure uses the concept o matching principle to make a relationship between the expenses and the revenue. Both these expenses and the revenues are generated in the same accounting period. Revenue expenditure is contrasted to another accounting term called capital expenditure. Revenue expenditure is the expense that provides immediate benefit to the business such as expense on repair or expense on purchasing printer papers. However the capital expenditure is the expense that is made for the long term benefit of the business. Capital expenditure may be referred as the long term investment for the business that will help business to grow and expand. The idea behind breaking the expenditure into capital and revenue expenditure is that companies want to analyze either they are uses their funds in an efficient manner and to identify the specific area that is using the funds. High revenue expenditure is not good for the financial strength of the business as it affects the ability of the business to gather capital expenditure. Low capital expenditure means that the firm is not able to make long term investments as a result it may not handle crises in a proper way
Similar Accounting Articles:
- Application of the Revenue Expenditure
- Calculation of Revenue Expenditure (Formula)
- Difference between Revenue and Capital Expenditure
- Examples of Revenue Expenditure