Determinants Factors of Revenue Expenditure
The specific factors that are the basis of expenditure are considered as Revenue Expenditure are as follows:
- Nature of Business: If the merchandise of a company is a computer system and its parts, computer equipment and its parts are considered as inventory, the costs associated with purchasing the inventory are categorized as Revenue Expenditure. But on the other hand, if the company is engaged in the transportation sector, then the purchase of the computer is considered a capital expenditure because it can help the company generate income for years to come.
- Recurring expenses: When the expenses occur several times in a financial year, the expenses are also considered as income expenses.
- Purpose of Expenditure: Revenue expenses are made for the purchase of inventory for resale purposes and not for personal or office use purposes. Expenditures are also spent on buying raw materials to turn them into finished goods and selling them to customers.
- Maintenance of Assets: If a company incurs costs for the normal maintenance of assets and not to increase its production capacity, it is considered a Revenue Expenditure. Any costs incurred for the purpose of increasing the useful life or income capacity of the asset are included in capital expenditures.
- Generating Revenue: If the expense created by the company helps in generating revenue for the current accounting period, it is considered an operating expense. Furthermore, according to the matching principle, expenses must be adjusted against the income earned during the period to be considered as income expenses.
- Amount Spent: The amount spent as income expenditure is relatively small and the benefits are only for a limited period of time, i.e. over a period of one year or less.
In short, Revenue Expenditure is basically a regular expense incurred that helps the company in running its business, namely to maintain its business operations. However, it will not add value to assets or reduce liabilities but help to generate income for the current period.