Revenue Expenditure and its Advantages

Revenue Expenditure and its Advantages

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Revenue expenditure is also known as revenue expense or operational expense (OPEX) and it includes all the short-term expenses that are used within the current period. It includes all the expenses that are needed to satisfy the operational costs of producing goods or services by a business. It is generally identified with fixed assets as it measures the expenses connected to a fixed asset. It includes all types of costs needed for successfully conducting a business like employee salaries, property taxes, etc. It is usually recorded for a single year or a specific accounting period.

An example of revenue expenditure is the monthly maintenance cost of equipment or machine. If a business makes use of a machine and needs periodic maintenance each month or within a specific interval, then the maintenance cost can be termed revenue expenditure. Thus, the business has to invest an amount in the machine each month or within a period for manufacturing its products or delivering a service. Other examples of the same include employee wages and salaries, insurance, advertising, rent on a property, cost of goods sold, subscription, etc.

There are many advantages of revenue expenditure and some of them are as follows:

1. A thorough understanding of the usefulness of each income expense will help determine the expenses that are essential to running the business.

2. As a result, it helps companies identify and fix unnecessary costs. If necessary, you can make informed and appropriate changes quickly.

3. OPEX is an important measure of a company's ability to control inventory and costs.

4. Tracking such costs allows companies to work out important horizontal analyses and better forecast the existing financial situation of the business.

Revenue expenditure is there in all government spending too and it is defined as the spending in the government revenue budget that is incurred for the everyday running of a smooth government. It does not provide any revenue to the government in the future and that is why, at the outset, it may be felt as an unproductive expenditure but it helps tremendously in running the government machinery. The The largest component of revenue expenditure in India is interest payments as in the Budget 2022-23, it makes up 23.8% of the government’s expenditure. Apart from it, defence (Revenue expenditure constitutes 70% of the defence expenditure), salaries and subsidies also constitute a major part.