What is an example of a revenue expenditure Mcq?

Decoding Revenue Expenditure: An MCQ Example and Beyond

Revenue expenditure is a common accounting concept that often trips up students. Understanding it is crucial for accurate financial reporting and decision-making. Simply put, revenue expenditure represents the cost of running a business in the present. These expenses are incurred to generate revenue in the current accounting period and are entirely consumed within that period. They are distinct from capital expenditures, which represent investments with a longer-term benefit.

Let’s illustrate with an example, framed as a multiple-choice question (MCQ):

Question: Which of the following is an example of a revenue expenditure?

a) Purchase of a new factory building
b) Acquisition of a long-term software license (usable for 5 years)
c) Monthly salaries paid to employees
d) Purchase of new machinery with a 10-year lifespan

Correct Answer: c) Monthly salaries paid to employees

Explanation:

• a) Purchase of a new factory building: This is a capital expenditure. The building provides benefits far beyond a single accounting period. Its cost is depreciated over its useful life.
• b) Acquisition of a long-term software license (usable for 5 years): This is also a capital expenditure. While not a tangible asset like a building, the software provides benefits extending beyond the current fiscal year. Its cost is amortized over the license period.
• c) Monthly salaries paid to employees: This is a revenue expenditure. Employee salaries are directly related to generating revenue in the current month. The benefit is consumed within the same period.
• d) Purchase of new machinery with a 10-year lifespan: This is a capital expenditure. The machinery is expected to contribute to revenue generation over its 10-year lifespan. Its cost is depreciated accordingly.

Beyond this example, other common revenue expenditures include:

• Utilities: Electricity, gas, water, and internet services.
• Office supplies: Paper, pens, ink, and other consumable office items.
• Marketing and advertising: Costs associated with promoting products or services.
• Repair and maintenance: Costs incurred to maintain existing assets in working order (as opposed to significant upgrades or replacements).
• Rent: Monthly or annual rent payments for office space or other facilities.

Understanding the difference between revenue and capital expenditures is vital for accurate financial statement preparation and for making informed business decisions about resource allocation. While the example above focuses on a simple scenario, applying this understanding to more complex situations requires careful consideration of the asset’s useful life and its contribution to revenue generation. The key lies in determining whether the expense benefits only the current period or provides long-term value.