Accounting Treatment of Revenue Expenditure
Revenue Expenditure is shown on the debit side of the Trading and Profit & Loss Account.
Illustration:
Determine which of the following is a Revenue Expenditure:
1. Factory Rent of 1,000.
2. Repairs for 2,000 necessitated by negligence.
3. Wages paid for the installation of new equipment.
4. Salary given to employees.
5. Purchased Patents for 2,00,000.
Solution:
1. Factory rent is a Revenue Expenditure because it is made to run the business. It will be shown on the debit side of the Trading Account.
2. Repairs for 2,000 is a Revenue Expenditure because it is made neither to maintain nor to improve an asset. It will be shown on the debit side of the Profit & Loss Account.
3. Wages paid for the installation of new equipment is not a Revenue Expenditure because it increases the assets of the company.
4. Salary given to employees is a Revenue Expenditure because it is made to run the business. It will be shown on the debit side of the Profit & Loss Account.
5. Purchase of patents for 2,00,000 is not a Revenue Expenditure because it results in an increase in intangible assets of the company.