Revenue Expenditure Meaning
The portion of government spending that does not result in the production of assets is known as revenue expenditure. Also, keep in mind that the government incurs income expenditures to meet its operating demands.
Revenue Expenditure Example
Governments gather vast quantities of funds. The job of spending such enormous sums has become quite difficult. The government spends money on colleges, schools, roads, hospitals, trains, bridges, seaports and airports, in addition to pensions and wages. It also spends money on keeping the nation safe from both foreign and internal threats.
While some of these duties are tied to the government’s operating demands, others result in the construction of physical assets such as dams and schools. As a result, government spending is split into two categories: capital and revenue spending.
What does revenue expenditure entail?
Money spent on revenue accounts – the amount spent on operating the Union government’s complex machinery — is included in the Union government’s revenue expenditure. Even if some of these funds are utilized to create capital assets, all grants made to state governments and Union territories are recognised as revenue expenditures.
- Subsidy payments are also included in revenue spending in India. Subsidies are distributed by the federal government in three categories: fertilizer, food, and gasoline.
- Giving and receiving loans has also become an important component of a contemporary government’s activities.
- Borrowing money, as well as debt repayment and interest, is split into two categories: capital and income accounts.
What Are Capital Expenditures (CapEx)?
CapEx is often utilized by businesses to fund new projects or expenditures. Companies use this form of financial investment to expand the scope of their activities or to add some economic advantage to the activity.
Capital Expenditures as investment
Capital expenditures (CapEx) are investments made by businesses to expand or sustain their operations. Capital expenditures are less predictable than operational costs, which are stable from year to year. A corporation that purchases pricey new equipment, for example, would account for the purchase as a capital expenditure. As a result, the equipment’s cost would be depreciated over the period of its useful life.
What’s the Difference Between Capital and Operating Expenditures?
The main distinction between capital expenditures and operational expenses is that operating expenses, such as rent, labor, and utility bills, reoccur on a regular and predictable basis. Capital costs, on the other hand, happen less often and with less consistency. Operating costs are entirely tax-deductible and shown on the income statement, but capital expenditures only decrease taxes via depreciation.
What is the difference between revenue and capital spending?
Both the Union government and state governments in India have been chastised for excessive revenue expenditures that leave little money for development. In the case of Union budgets, revenue expenditure accounts for 85-90 percent of total spending. It’s worth noting that excessive revenue spending stymies development initiatives.
High revenue expenditure indicates that the government apparatus is using too much of its resources on maintaining itself rather than producing the assets necessary for high economic development. Interest payments account for up to a fourth of the Union budget in India. It implies the government borrows Rs 6-7 lakh crore per year only to cover its interest payment obligations, leaving little room for asset development.
Frequently Asked Questions (FAQs)
Are wages a form of capital or a kind of revenue?
Because goods are acquired to be sold, the wage paid to temporary employees on the purchase of commodities is a revenue expenditure. Because things are acquired repeatedly as part of corporate activities, the transaction is repetitive by nature.
Is capital spending a cost or a benefit?
Rather than attributing it to expense right away, a capital expenditure is recorded as an asset. It is classed as a fixed asset, which is then depreciated and charged to expenditure during the asset’s useful life.
What effect does capital spending have on profit?
The real cost of a capital expenditure does not immediately affect the income statement, but depreciation progressively diminishes earnings during the asset’s lifetime. Depending on the kind of asset, however, capital expenditure may have an immediate impact on the income statement in various ways.