Earnings or Revenue Expenditure is the expenditure incurred during the daily business activities of a company in the production and sale of goods and services that help generate revenue for the company during the accounting period.
In other words, this Revenue Expenditure must be recorded in the same time period when the income generated from the production of the goods or services is in accordance with the matching principle.
It should be noted that this Revenue Expenditure cannot be capitalized as a fixed asset on the balance sheet so that it will be charged directly in the income statement in the current period in which the expense is incurred.
Revenue Expenditure Example
One example of income expenditure is the additional cost attached to a fixed asset such as a production machine. These production machines may need to be cleaned and lubricated regularly. These maintenance costs like cleaning and lubricating basically don’t add any value to the machine. These cleaning and lubrication activities only need to be done to keep the equipment or machine running.
Another example of non-value-added costs is painting. Over time, machines such as lathes and other production machines may rust and corrode. To keep it up and running, managers usually schedule it to be dismantled, sandblasted, and then repainted. The whole process doesn’t add any value to the machine. It just maintains its integrity and keeps it from rusting.
The types of withdrawals that are usually categorized as Income Withdrawals include:
- Salaries and Wages
- Freight Transport
- Rent and rates for factories or office buildings
- Interest on loan capital
- Decreasing asset
- Cost of goods sold
- Electricity bills
- Transportation costs
- Machine Repair and Maintenance (oiling, cleaning, repainting and others)
- Raw materials, products are still in process and finished goods
- Costs incurred for asset maintenance
- Taxes and Legal Charges
- Insurance premium