What Is Revenue Expenditure and How It Differs From Capital Expenditure

Revenue expenditure is one of the most confusing concepts and usually gets mixed up with capital expenditure. The confusion between these two types of expenditures can lead to severe consequences for your taxes and decision-making as your accounting figures might change significantly. 

We’re here to help you avoid this situation from happening. 

Scroll down to understand what revenue expenditure is and learn the key differences between revenue expenditure and capital expenditure. 

Definition of revenue expenditure 

Revenue expenditures are short-term expenses incurred that are significant for generating revenue within the same accounting period. It also usually refers to costs associated with existing fixed assets, which are spent to merely maintain the assets in their working condition without adding any additional value. 

Typical examples of revenue expenditure are repair and regular maintenance costs. Those expenses are necessary to keep your machines or equipment operating well. At the same time, they don’t substantially improve or extend the assets’ useful life for future financial benefits.  

Types of revenue expenditure

There are two main categories of revenue expenditure: 

  • Expenses for maintaining revenue-generating assets (e.g., cleaning, repairs, and maintenance costs)
  • Expenses for running the day-to-day business (e.g., wages paid to factory workers, utility expenses, rent, and office supplies)

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Key differences between revenue expenditure and capital expenditure  

First of all, what is capital expenditure? 

Capital expenditure is the amount spent to acquire or considerably upgrade the capacity or capabilities of long-term assets like equipment, machines, or buildings.

The key difference between the two is time scale, whereby revenue expenditures simply keep the business going on a day-to-day basis while capital expenditures invest in the longer-term growth of the business.

To help you easily see the main differences between revenue expenditure and capital expenditure, we’ve created a table to summarize below: 

Revenue expenditureCapital expenditure
Operate day-to-day business Acquire long-term assets 
Maintain long-term assets in working condition—add no extra valuesImprove long-term assets—add extra value
Provide benefits only for the accounting period Provide benefits for more than an accounting period 

Want to read more about finance? 

If you’d like to explore more entrepreneurship stories, financial tips, or productivity tools, find more posts like this on the Shoeboxed blog.

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Bad Spending Habits That Could Hurt Your Business

As a business owner, the challenge of how to increase profits is on your mind all the time. Improving the quality of your products and services or investing more in marketing are usually the first methods businesses think of to make more money. Yet, stopping bad spending habits is also a very effective way to grow your income. You can avoid losing money on unnecessary expenses and reallocate that cash to value-driving factors. 

This article will help identify the most common spending habits that harm your business. Hopefully, you can steer clear of them to build a healthy financial environment for your business. 

The 4 spending habits to avoid for your business  

Here are the most common spending mistakes that every business owner should be aware of:

Spending without a proper budget 

This mistake is commonly seen in newly established small businesses. They don’t think a budget is necessary when their companies only have a few financial activities. This is in fact incorrect. Not having a reasonable budget can lead to multiple painful consequences like overspending, a high chance of going into debt, a lack of savings, and less financial security. 

Additionally, when your business operates without a budget, it makes dealing with unexpected expenses, cash flow management, and meeting your financial goals way more challenging. In short, a budget allows you to allocate money more wisely, resulting in saving more money.  

If you don’t know how to make a budget yet, check out our 7-step guide to create a business budget.

Inconsistently and insufficiently recording spendings 

It’s disastrous when a business fails to record spending properly. This leads to being unable to keep good track of your expenses. You have no idea how much money was actually spent, making it impossible to determine your net profit. When you don’t have spending calculated accurately, you’re unable to evaluate your financial performance; hence no appropriate business strategies can be devised to create future growth. 

On top of that, poor spending records will guarantee that you have a miserable time when tax season comes. You’ll have no concrete data to file for tax deductions, meaning you’ll need to pay more than necessary to the IRS. That’s why you should always have your spending correctly recorded in your journals. If you don’t have enough time to do the recording, it’s best to outsource a freelancer or a professional bookkeeper.   

Another tip to avoid this bad spending habit is to keep your receipts. Every purchase goes together with a receipt. Keeping and organizing the receipts will help you better keep track of your spending and be ready to provide the IRS proof for tax deductions when required. 

Shoeboxed can help you do this with ease. Shoeboxed is a receipt scanner application that digitizes your receipts in just seconds. Your receipts will be safely stored in the cloud and easy to search whenever needed. Scanned documents from Shoeboxed are also legible and fully accepted by the IRS. 

Don’t lose money to Uncle Sam!  Get your receipts and bookkeeping records organized today! 

You might also be interested in: 7 Bookkeeping Practices Every Business Should Implement.

Not paying your purchase orders on time

Many businesses habitually pay their purchase orders as late as possible, which is fine as long as you pay them on time. This is because not paying on time can have serious consequences in the long run. The most obvious result is late payment penalties. 

While penalty costs may not be much for each purchase order if your payment is only a little late, those small penalty fees add up to hurt your profit. On top of that, late payments will severely harm your business reputation in the long run. Suppliers who may have heard about your history of late payments will be wary of doing business or offering you a good deal. 

Such problems won’t happen if you take extra care with your payment deadlines. Make sure you have the money/documents ready and processed at least a few days before the due date to have enough time to deal with any unexpected issues that arise. 

Using your personal credit card to pay for your business expenses 

Drawing a boundary between personal and professional spending can be confusing and difficult for self-employed individuals, small business owners, and freelancers. That’s why many of them end up using the same credit card for personal and corporate purposes for convenience. However, this habit may not be the best, and there are multiple reasons why. 

Using your personal credit card for business expenses will prevent you from building your business credit history. Without a good business credit history, you’ll find it challenging to apply for business loans, equipment leases, etc. because before lending you money, investors and lenders always check your business’s credit history. 

Additionally, a personal credit card has a lower credit limit than a business credit card. For that matter, your personal credit card will be of no use when you need to acquire something expensive for business purposes like machinery and equipment, office renovation, lease or rent, etc. 

Lastly, this spending habit makes your tax filing process painful. Trying to find business costs by going through your personal credit card accounts takes time, can lead to mistakes, and may even result in an audit. Keep these costs in one place – your company credit card – to make things easier for yourself.

You might also be interested in: Which Small Business Credit card is Best for Your Biz?

Want to read more about business? 

If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on the Shoeboxed Blog. Shoeboxed is a well-trusted tool to help businesses, freelancers, and DIY accountants store and organize their receipts. It quickly and efficiently digitizes your receipts and documents, then automatically extracts, categorizes, and human-verifies important data from your receipts. You can scan their receipts, manage expenses, store business cards, and track business mileage easily, helping you boost productivity and bring in more revenue. 

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4 Most Used Budgeting Methods for Businesses

A budget is a crucial planning tool for every business. It estimates your future expenses, revenue, and profits. It helps you better control spending and identify situations where revenue may not be sufficient to cover expenditures. Moreover, a budget allows you to realize potential growth opportunities when you may have extra cash available to invest in new ventures.

This article will look into four different budgeting methods used widely among businesses and help you find the one that best suits your current situation and type of organization.

4 Types of budgeting methods: Which one is right for your business? 

Below are the most common types of budgeting methods that you may want to consider for your business.

Budgeting method #1: Incremental budgeting 

One of the most popular approaches is incremental budgeting. There’s no fixed formula for incremental budgeting – you simply change last year’s budget by an increment or percentage to obtain this year’s budget figure. 

This method focuses on small changes from the actual or budgeted results from the preceding period. It’s perfect when your primary cost-driving factors don’t regularly change. Without the need for complex calculations, incremental budgeting is the quickest of all budgeting methods. However, be aware that your company’s departments may overspend to avoid receiving a smaller budget the following fiscal year. It’s best to look into specific expenditures and spending habits to prevent any kinds of budgetary slack. 

Best for: Those who are limited on time but need a method that is  effective and reasonable. It’s also well-suited if you have an established business with predictable and consistent cash flow and financial activities. 

See also: How To Create a Business Budget with 7 Steps.

Budgeting method #2: Activity-based budgeting (ABB)

Activity-based budgeting (ABB) is a budgeting method in which every activity that incurs costs is tracked and analyzed to identify areas for improved cost-saving. After figuring out how to enhance cost-efficiency, a business will create a budget based on those findings. Companies typically employ this budgeting method to cut expenses, boost productivity, gain a competitive advantage, and improve overall operations efficiency. Rather than just using the past budgets to determine a new budget like the incremental budgeting method, the ABB system digs deeper into the company’s performance.

The ABB system gives you more control over the budgeting process. Since the budget uses relatively precise data for the projections, it helps managers align the budget with overall company goals much easier. Due to its complexity, the ABB method is more expensive and time-consuming to implement and maintain.

Best for: New companies without historical budgeting data should consider this method. The ABB method is also popular in major industries, like manufacturing, construction, and healthcare. Companies that are going under significant changes, such as new subsidiaries, large clients, business locations, or products, are likely to use the ABB technique as well.  

Budgeting method #3: Value proposition budgeting (VPB) 

Value proposition budgeting (VPB), or priority-based budgeting, is all about driving value. With this method, you go through every cost item to decide whether the value it brings justifies its cost. This allows your business to focus on true value drivers while avoiding wasteful spending. One of the main downsides of the VPB method is that value is not easy to determine as it depends on multiple factors like politics or economic trends. If there isn’t a clear understanding of value, business owners may make short-term decisions that negatively influence long-term goals. 

When preparing for the VPB method, businesses have to answer these essential questions:

  • Why are we spending this amount of money?
  • What value does it bring to our customers and stakeholders? 
  • Does the value outweigh the cost? 

Best for: This method best suits companies aiming to reduce unnecessary expenses and refocus on creating what customers want most. Many government entities also favor this budgeting method because it involves a lot of financial restructuring throughout the year, and VPB can help them identify which services are most valuable and most needed within the community.

See also: Are You Maximizing Your Business Budget?

Budgeting method #4: Zero-based budgeting (ZBB)

Zero-based budgeting (ZBB) is another common budgeting method. When applying the ZBB method, you assume that all department budgets are zero and must be rebuilt from scratch. In other words, past budgets’ numbers are not considered. Budget planners must justify every penny spent. The ZBB method is very strict, attempting to eliminate any expenses that do not contribute to the company’s profit. It’s difficult and time-consuming to carry out a zero-based budget, so many companies only use this approach on occasion.

Best for: This extreme budgeting method is very useful when a business has an urgent need to reduce cost, for example, a financial restructuring.  

The bottom line 

Employing a suitable budgeting method for your business is an effective way to save costs, increase productivity, and bring in more profits. 

By understanding the basics of commonly-used budgeting methods among businesses, you can gain a deeper insight into your own business’s situation to improve your financial performance. 

In order to determine your ideal budgeting method, it’s important that you have accurately recorded expenses. In order to do so, you need to have your receipts organized and stored safely.  

Shoeboxed can help you. 

Shoeboxed is a well-trusted tool to help businesses, freelancers, and DIY accountants store and organize their receipts. It is a software program that quickly and efficiently digitizes your receipts and documents. This app automatically extracts, verifies, and categorizes important data from your receipts, then stores them securely in the cloud. Most importantly, scanned documents from Shoeboxed are accepted by the IRS


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