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What are revenue expenditures and factors considered in determining it?
Revenue expenditures are those expenditures which are incurred in normal business operations by an organization/company.
In other words, revenue expenditures are the sum of expenses which are incurred in production of goods and expenses incurred in services in an accounting period. Benefits of revenue expenditure received in the same period.
Revenue expenditure will not add in profits, but these are helpful in maintaining day to day operational activities and managing assets in a better way. These are also known as OPEX/revenue expenses.
The types of revenue expenditures are as follows −
- Maintaining asset (revenue generated) − Repairs and maintenance.
- Revenue generating − Expenses to operate day to day business.
The examples of revenue expenditures are listed below −
|Direct expense||Indirect expenses|
|Electricity cost||Other miscellaneous expenses|
The factors which determine the revenue expenditures are given below −
- Nature of business − Amount spent on purchase of goods.
- Revenue generation − Revenue generated in current accounting period.
- Purpose − Expenditure spent for asset maintenance.
- Materiality − Amount is immaterial.
Significance and Challenges
The significance of the revenue expenditure and the challenges faced with regards to this expenditure are explained below −
|Identifies indispensable costs, unessential expenses.||Limited to current accounting period.|
|Firms’ proficiency is determined.||Does not provide accurate overall financial standing.|
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