Revenue expenditure is the expense happens due to normal business operation and it provides benefit in the same accounting period. The company needs these expenses to run the operation and generate revenue. These expenses will provide the benefit to the company in the current period only. They will not have any benefit in the future which is different from capital expenditure.
Revenue Expenditure Example
Company A is the manufacturing of the toy, the revenue expenditures include:
- Salary expense
- Rental expense
- Utility expense
- Insurance expense
- Advertising expense
- Normal machinery repair and maintenance
Feature of Revenue Expenditure
|Ongoing normal business operation
|They are the normal business expense which will happen daily or monthly or even annually. They do not meet the criteria to be capital expenditure. We will not be able to run the business without these kinds of expenses.
|Small amount expense
|These kinds of expenses usually small amounts if we compare to the business size. It is often less expensive than capital expenditure. Sometimes the expense may be used in the future, but it is not big enough to impact the business decision. For example, the company purchases office supplies of $ 50 which will last for a few months. However, we may consider it as the operating expense for the accounting period.
|The expenses will be used within the accounting period. There is no remaining amount which will bring to the next period. The purchase of factory machinery will classify as the fixed asset and depreciate over time as they will last for several years at least.
|The expense will generate the benefit (revenue) within the same accounting period. For example, the rental expense will be matching with the revenue which generates in the same accounting period.
Revenue expenditure Vs Capital Expenditure
Capital expenditure is the amount spend to acquire or significantly improve fixed assets such as land, building, vehicle and other equipment.
|Charge to expense during the accounting period when they incur.
|Capitalize as an asset and charge to expense through depreciation or amortization over the useful life.
|The economic benefit will be consumed by the time we pay and it cannot retain for future use. For example, Salary expenses, rental expense and so on, they will be consumed and can not store for the future.
|The economic benefit will be consumed based on the useful life of the asset. The building which the company build may last for around 10 years before any significant repair requires.
|The revenue expenditure usually involves a small amount. The amount may vary from business to another business.
|The capitalized expense usually involve big amounts such as the purchase of machinery, vehicles, and building.