Rules for Determining Revenue Expenditures

Revenue Expenditures

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:

1. Recurring nature
2. Arise from trading activities
3. The amount spent on revenue expenditures is relatively small
4. 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.

Examples

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.

Examples

Repairs, renewals, and depreciation.

3. Consumable Items

Expenditures incurred on consumable items or goods and services for resale in their original or improved shape.

Examples

Purchase of raw materials, office stationery, etc.

More Examples

To clarify revenue expenditures further, a list is given below that includes more examples:

1. Salaries and wages paid to employees
2. Rent and rates for the factory or office premises
3. Depreciation on plant and machinery
4. Consumable stores
5. Inventory of raw materials, work-in-progress, and finished goods
6. Insurance premium
7. Taxes and legal expenses
8. Repairs, renewals, and replacements for the purpose of maintaining the existing fixed assets of the business
9. Interest on loans borrowed for business
10. Cost of oil to lubricate machines
11. Cost of merchandise bought for resale