Income and revenue are not the same. Income of any form is called revenue, whereas revenue is any income or expenditure. Revenue expenditures are the amounts spent on routine business expenses, such as salaries paid to employees or rent.
Given that revenue expenditures offer benefits to businesses for the current accounting period, they are debited as expenses in the trading and profit and loss account.
At the end of the year, some revenue items may still be on hand, including stock and stationery. These items are transferred to the next year.
Features of Revenue Expenditures
Revenue expenditures have the following features:
- Recurring nature
- Arise from trading activities
- The amount spent on revenue expenditures is relatively small
- The period of benefit from revenue expenditure is limited to an accounting period
Rules for Determining Revenue Expenditures
Any expenditure can be referred to as an item of revenue expenditure if it is incurred for one of the following purposes:
1. Routine Expenses
Routine expenditures incurred during the daily conduct of business with a benefit of less than one year.
Salaries paid to employees, office rent, interest on capital, and sales and marketing expenses.
2. Maintenance of Fixed Assets
Expenditures incurred to maintain fixed assets.
Repairs, renewals, and depreciation.
3. Consumable Items
Expenditures incurred on consumable items or goods and services for resale in their original or improved shape.
Purchase of raw materials, office stationery, etc.
To clarify revenue expenditures further, a list is given below that includes more examples:
- Salaries and wages paid to employees
- Rent and rates for the factory or office premises
- Depreciation on plant and machinery
- Consumable stores
- Inventory of raw materials, work-in-progress, and finished goods
- Insurance premium
- Taxes and legal expenses
- Repairs, renewals, and replacements for the purpose of maintaining the existing fixed assets of the business
- Interest on loans borrowed for business
- Cost of oil to lubricate machines
- Cost of merchandise bought for resale