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## Vipul's™ Elements of Financial Accounting (F.A.) ### 3.2.2 What is Revenue Expenditure? Revenue expenditure is expenditure incurred: * for the actual running of business * in maintaining adequately all the fixed assets * in an accounting period and is: * matched against the income of that...

## Vipul's™ Elements of Financial Accounting (F.A.) ### 3.2.2 What is Revenue Expenditure? Revenue expenditure is expenditure incurred: * for the actual running of business * in maintaining adequately all the fixed assets * in an accounting period and is: * matched against the income of that accounting period * not carried forward to the subsequent accounting year Revenue expenditure is necessary for the maintenance of the earning capacity (including the upkeep of fixed assets), and all other expenses incurred in sale and purchase of goods and services, office administration, etc. ### Examples of revenue expenditure are: * All items of expenditure whose benefit expires within the same year of expenditure e.g., printing and stationery, travelling expenses, rent, salaries and wages. These are the administration and such other expenses incurred in the normal course of the business like office expenses, sales expenses, interest, audit fees etc. * Cost of purchase of goods for conversion into final product for resale e.g., purchase of raw materials, packing materials and also such conversion charges as are necessary to produce the saleable product. * Expenditure incurred in maintaining the fixed assets of the business, e.g., repairs and maintenance of machinery, furniture, building. * Depreciation on fixed assets. ### 3.2.3 Distinction Between Capital Expenditure and Revenue Expenditure: * "The purpose of capital expenditure is to increase the earning capacity of the business." However, the distinction is not so clear-cut. For example, if an expenditure increases the earning capacity of a business, e.g. installing wide screen, it cannot be treated as revenue expenditure, because it does not increase the earning capacity simultaneously, since such expenditure is being written off. It must be appreciated that capital only because it is small. Thus, a huge expenditure e.g. Rs. 50,00,000 is revenue expenditure, while that of revenue expenditure is small, say Rs. 900. The characteristic of capital expenditure does not depend on the character of the receiver. A business construction of his office is a capital expenditure. Similarly, a revenue receipt for the rent of a machine used as a part of the main asset is revenue receipt. There are certain examples of accounting purposes that are capital receipts: * Preliminary expenses * Cost of formation * Cost of issue of shares and debentures * Interest paid on capital during construction period