At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site.

Types of Revenue Expenditures

Clearly, the purchase of a delivery truck is a capital expenditure, whereas an engine tune-up is a revenue expenditure. The following diagram illustrates the difference between capital and revenue expenditures. Below is a truncated portion of the company’s income statement and cash flow statement as of the company’s 10-Q report filed on June 30, 2020. For example, the labor cost to adjust a new machine during installation is considered a capital expenditure and, therefore, forms part of the acquisition cost of the machine.

However, that does not mean that revenue expenditures are in any way less important than capital expenditures. Once a capital expenditure is completed, revenue expenditures are required to be paid to keep the asset running, and help realize its benefits. To understand whether to classify an expense as a revenue expenditure, the easiest question to ask is whether it boosts the capability of the company to generate higher revenues. If the answer is yes, then the cost is most likely to be a capital expenditure.

1. On the other hand, the same labor cost subsequent to the operation of the machine is an item of revenue expenditure.
2. As capital expenditures provide benefits over multiple years, the accounting treatment to ensure accurate recording of financial statements is a little bit more complex than that of revenue expenditures.
3. Revenue expenses can be fully tax-deducted in the same year the expenses occur.
4. This helps in avoiding financial imbalances and allows for better planning and resource allocation.
5. The concept of revenue expenditure means the funds that a company or organization spends on its day-to-day operational activities and expenses necessary for the maintenance of regular business operations.
6. Revenue expenditures are charged to expense in the current period, or shortly thereafter.

Would you prefer to work with a financial professional remotely or in-person?

The process results in firms receiving another asset, such as a delivery truck, or using a service, such as repairing a delivery truck. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. Read our essential guide to the best SaaS accounting software, including Sage, QuickBooks, Xero, NetSuite and more.

Get Your Questions Answered and Book a Free Call if Necessary

For the sake of simplicity, we will not populate the rest of the cash flow statement to keep the focus only on the capital expenditures. As can be seen, capital expenditures reduce “Cash Flow from Investing” in the cash flow statement in the year they are made. Some expenditures lie on the borderline between capital and revenue expenditure, making them difficult to categorize. For example, the cost of repairs, alterations, and extensions may be considered as capital expenditure for one entity but as revenue expenditure for another. Deferred revenue expenditure meaning refers to the expenses incurred by a business that are allocated over multiple accounting periods rather than being fully recognized in the period they are incurred. Managing expenses is a critical aspect of financial management for businesses and organizations.

Revenue Expenditures

Capital expenditures represent money spent to purchase, improve, or extend the life of a long-term asset. Revenue expenditures are incurred in the normal course of business for supplies, repairs, and other operating costs that do not add value to an asset. Revenue expenditures are current expenses and include ordinary repairs, maintenance, fuel, and other items required to keep assets in normal working condition. Capital expenditures are usually recorded within one of the major fixed asset classifications. Examples of these classifications are buildings, computers, furniture and fixtures, machinery, and vehicles.

A revenue expenditure is assumed to be consumed within a very short period of time. Revenue expenditures are stated within the lines items of the income statement. They are included below the sales figure, which appears at the top of the income statement. Revenue expenditures may be included within the cost of goods sold section or the operating how to calculate taxable income expenses section of the statement.

When expenditure results in a service whose benefits are consumed in the current period, it is called an item of revenue expenditure. finance concierge for startups Capital expenditures represent significant investments of capital that a company makes to maintain or, more often, to expand its business and generate additional profits. CapEx consists of the purchase of long-term assets, which are assets that last for more than one year but typically have a useful life of many years.