Revenue expenditure refers to the cost that is obliged to spend immediately after the cost is earned. By following this matching principle, it is possible for a business to link up the incurred expenses to the generated revenues within the same accounting term. Thus, a correct income statement result can capitulate.
Usually, revenue expenditures are known as expenses of business. Usually, majority of revenues is divided into operating expenses and cost of sales. Whereas the operating expenses are essential to run a business, the cost of sales is helpful to obtain the products required for sale to be sold.
Revenue expenditure can be divided into two categories –
- Maintaining a revenue generating asset: This category consists of maintenance and repair expenses as these are incurred to sustain the current operations and do not have the liability to improve an asset or enhance its life.
- Generating revenue: The day-to-day expenses that are essential for operating a business come under this category. Everyday expense refers to rent, sales salaries, utilities, office supplies and so on.
Example of Revenue Expenditure
Without these expenses any business would come to a standstill, examples salaries, selling expenses, etc.
Of course, there are so many additional costs related to business, but those do not come under the revenue expenditure as those are essentially related to generating the future revenues. For example, when a fixed asset is purchased, it is categorized as an asset that is allowed to spend over multiple financial periods. Thus, it matches to the cost of the asset with the multiple financial periods of revenue generation. Contrary to revenue expenditure, these are categorized as capital expenditures that have product benefits beyond a single period.