What is a revenue expenditure?

Definition of Revenue Expenditure

A revenue expenditure is a cost that will be an expense in the accounting period when the
expenditure takes place.

Revenue expenditures are often discussed in the context of fixed assets. The revenue

expenditures take place after a fixed asset had been put into service and simply keeps the asset in

working order. (The amount spent to acquire a fixed asset is referred to as a capital expenditure.

The amount of the capital expenditure will be recorded as an asset and will then be moved to the

income statement as depreciation expense over the years of the asset's useful life.)

Example of Revenue Expenditure

Let's assume that a company made a capital expenditure of $100,000 to install a high efficiency

machine. The new machine requires routine maintenance of $3,000 each month. This $3,000 is

a revenue expenditure since it will be reported on the monthly income statement, thereby being

matched with the month's revenues.

Normal repairs to the machine are also a revenue expenditure, since the expenditure does not

make the machine more than it was, nor does it extend the machine's useful life. As a result,

normal repairs will also be reported on the income statement as an expense in the accounting

period when the repair is made.

 Definition of Capital Expenditures
Capital expenditures are the amounts spent for tangible assets that will be used for more than one

year in the operations of a business. Capital expenditures, which are sometimes referred to

as capex, can be thought of as the amounts spent to acquire or improve a company's fixed assets.

The capital expenditures increase the respective asset accounts which are reported in the

noncurrent asset section of the balance sheet entitled property, plant and equipment. Once the

assets (except for land) are placed in service they are depreciated over their useful lives. The

accumulated depreciation for these assets is also reported as part of the property, plant and

equipment.

The amount of capital expenditures for an accounting period is also reported in the cash flow

statement as a negative amount (since it is a cash outflow) in the investing activities section.

Many financial analysts subtract the capital expenditures amount from the cash from operating

activities to arrive at the company's free cash flow.

Examples of Capital Expenditures

Capital expenditures include the amounts spent to acquire or make significant improvements to

land, buildings, machinery, equipment, furniture, fixtures, vehicles, computer information

systems, leasehold improvements, etc.