Revenue Expenditure
Revenue Expenditure are expenses incurred by the business in purchasing of goods for re-selling purposes. For example, when an organization purchase inventory.
Revenue Expenditure is incurred by the management when it is necessary to generate income.
Revenue Expenditure is compared with revenue income to determine the trading profit of the business.
Difference between Revenue Expenditure and Capital Expenditure
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Capital Expenditure
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Revenue Expenditure
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1
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Intention of purchasing the good is to help in the day to day operations of the business
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1.
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Intention of purchasing the good is for reselling or ordinary business activity
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2
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Good acquired-are categorized as capital good
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2
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Good acquired-are categorized as inventory
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3
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A corresponding fixed asset account is opened on purchase of capital goods. e.g machinery-machinery a/c
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3.
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A purchases account is opened on purchase of revenue goods. e.g machinery a/c-purchases a/c
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4
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If capital good is sold i.e disposed, the account used to determine capital gain or loss on disposal is fixed asset disposal account e.g Machinery disposal account is opened
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4.
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If good categorized as inventory is sold, the account used to determine revenue gain or loss on sale is trading account e.g sale of Machinery, trading a/c is opened.
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5
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Capital gain/loss is not recognized by the tax man as an operating gain/loss when determining tax liability
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5
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Revenue gain/loss is recognized by tax man as an operating gain/loss when determining tax liability
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About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.
