Revenue Expenditure | Meaning, Types, Example and Accounting Treatment

What is Revenue Expenditure?

Revenue Expenditure refers to the amount spent whose benefit is either received or exhausted within the accounting period. It can be said that any expense that is not a capital expenditure is a revenue expenditure. Rent, salaries, expenses for maintaining and repairing fixed assets, and so on are examples of revenue expenditures.

Key points to remember:

• Revenue Expenditure is recorded as an expenditure and is matched against revenues earned in that particular period to determine the profit or loss of that accounting period.
• It also contains the part of capital expenditure that is consumed within an accounting period, like, Depreciation on fixed assets.

Types of Revenue Expenditure

The two types of revenue expenditure are Direct Expense and Indirect Expense.

1. Direct Expense: The expense that arises from the production of raw material to the final goods/services is known as Direct Expense. For example, shipping costs, electricity bills, commission, factory rent, power, labor wages, etc.

2. Indirect Expense: The expense that indirectly arises through the sale of goods/services and their distribution is known as Indirect Expense. For example, depreciation on machinery, telephone bills, etc.

Examples of Revenue Expenditure

1. Expenditure made to protect fixed assets, such as repairs and maintenance of fixed assets, charges of whitewashing, etc. It excludes any expense paid while acquiring an asset because it is treated as an expenditure of a capital nature.
2. Expenses made for the day-to-day operation of a company, like rent, salaries, power, fuel, shipment, wages, interest paid on a loan, and so on.
3. Depreciation on tangible assets and amortisation on intangible assets are also examples of revenue expenditure.

Accounting Treatment of Revenue Expenditure

Revenue Expenditure is shown on the debit side of the Trading and Profit & Loss Account.

Illustration:

Determine which of the following is a Revenue Expenditure:

1. Factory Rent of 1,000.

2. Repairs for 2,000 necessitated by negligence.

3. Wages paid for the installation of new equipment.

4. Salary given to employees.

5. Purchased Patents for 2,00,000.

Solution:

1. Factory rent is a Revenue Expenditure because it is made to run the business. It will be shown on the debit side of the Trading Account.

2. Repairs for 2,000 is a Revenue Expenditure because it is made neither to maintain nor to improve an asset. It will be shown on the debit side of the Profit & Loss Account.

3. Wages paid for the installation of new equipment is not a Revenue Expenditure because it increases the assets of the company.

4. Salary given to employees is a Revenue Expenditure because it is made to run the business. It will be shown on the debit side of the Profit & Loss Account.

5. Purchase of patents for 2,00,000 is not a Revenue Expenditure because it results in an increase in intangible assets of the company.