What are Revenue Expenditures?

//What are Revenue Expenditures?
What are Revenue Expenditures? 2017-10-10T04:37:25+00:00

Definition: A revenue expenditure, also called an income statement expenditure, is a cost related to assets that are not capitalized because they will not provide a financial benefit in future periods. In other words, revenue expenditures are extra expenses incurred because of an asset, but they don’t add any additional value to the asset or increase its useful life or productivity.

What Does Revenue Expenditure Mean?

These expenses are not added to the book value of the asset because they don’t provide any future benefit. Remember, the definition of an asset is a resource that provides a future benefit. These expenditures don’t provide a benefit, so they are expensed and reported on the income statement instead of being capitalized and reported on the balance sheet.

Example

An example of a revenue expenditure is an additional cost attached to a fixed asset like a piece of machinery. Some machines need to be cleaned and lubricated regularly. These costs don’t really add any value to the machine. They are just necessary to keep the equipment running.

Another example of a non-value adding cost is painting. Over time machines like lathes and drill presses tend to rust and corrode. In order to keep them operational, managers usually schedule them to be disassembled, sandblasted, repainted, and assembled. The entire process doesn’t add any value to the machine. It just maintains its integrity and keeps it from rusting away.

These revenue expenditures are in sharp contrast to betterments. Betterments are expenses that actually improve the performance or useful life of the asset. They not only keep the asset operational; they extend the operational life. Betterments are usually capitalized and added to the asset cost on the balance sheet. These improvements are then depreciated over time instead of being expensed immediately like revenue expenditures.