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