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Revenue Expenditure . #RevenueExpenditure

It is the expenditure NOT used to create assets e.g. expenses on salaries or other administrative costs.

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  • The Revenue Expense relates to the operations of the business of an accounting period or to the revenue earned during the period or the items of expenditure, benefits of which do not extend beyond that period.
  • Revenue Expenses must be associated with a physical activity of the entity.
  • Expenses are recognised in the Profit & Loss Account through matching principal which tells us when and how much of the expenses to be charged against revenue.
  • A part of the expenditure can be capitalised only when these can be traced directly to definable streams of future benefits.
  • Revenue expenditures are shown in the profit and loss account as their benefits are for one accounting period i.e. in which they are incurred.
  • Revenue expenditures are transferred to profit and loss account in the year of spending.
  • The revenue expenses either occur in direct relation with the revenue or in relation with accounting periods, for example cost of goods sold, salaries, rent, etc. Cost of goods sold is directly related to sales revenue whereas rent is related to the particular accounting period.

     

    EXAMPLE-

    1. Legal expenses incurred to defend a suit claiming that the firm’s factory site belongs to the plaintiff is maintenance expenditure of the asset. By this expense, neither any endurable benefit can be obtained in future in addition to that what is presently available nor the capacity of the asset will be increased. Maintenance expenditure in relation to an asset is revenue expenditure.
    2. Amount spent for replacement of any worn out part of a machine is revenue expense since it is part of its maintenance cost.

A broad category of things that fall under such expenditures in India are –

  Interest payment by the government on the internal and external loans

  Salaries, Pension and Provident Fund paid to government employees

  Subsidies

  Defense expenditures

  Postal Deficits of the government

  Law and order expenditures (i.e., police & paramilitary)

  Expenditures on social services (includes all social sector expenditures as education, health care, security, poverty alleviation, etc.) and general services (tax collection, etc.)

  Grants by GoI to Indian states and foreign countries.

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