Before a business begins its operations, it purchases assets, which constitute the capital expenditures. The business also incurs various costs durinng its operation for it to run smoothly which include recurring expenditures; essentially the cash inputs that enable the business to stay afloat and to offer its goods and services. It is not uncommon for the business to identify recurring expenditures as ordinary expenses unlike non-recurring expenditure such as loss of an asset, which constitute extraordinary expenses.
Repairs and Maintenance
A business will not use recurring expenditure to acquire or create any new fixed assets. However, it uses this type of expenditure in the maintenance and repair of the physical capital assets which already exist in the business. These maintenances and repairs recur or take place frequently and predictably. An example of repairs and maintenances which make up recurring expenditure include: servicing of machinery at the end of the month.
Operational costs are consumption expenditures, which also constitute recurring expenditures. These are the expenses related with the production and distribution of goods and services in the business. Operating expenditures are recurring because the business incurs them within an expected period such as within a month. Operational recurring expenditures include wages and salaries for employees, rent and utilities payments such as electricity and water bills. The business deducts recurring operational costs from the revenue generated.
Revenue expenditure is cash used to acquire new fixed assets, which will contribute to the asset base of a business such as purchasing a business premises. Recurring expenditure is a factor of revenue expenditure, as some revenue expenditures constitute recurring expenditure such as payment of salaries and operational utilities such as electricity. However, not all revenue expenditures are recurring. The non-recurring revenue expenditures typically include one off expenditures used on advertising, sales and marketing campaigns or a promotion.
You record recurring expenditures as expenses in the business accounting books but not in the balance sheet, which is primarily concerned with assets and liabilities. Rather, you record recurring expenditures as expenses in the income statement also known as the profit and loss statement. Subtracting the total expenses from the total revenue generated shows the net profit generated by the business. Overall, recurring expenditures reduce the total revenues generated by business.
Diana Wicks is a Canadian residing in Vancouver. She began writing in 2004 while still a student at Lincoln School of Journalism, in the city of London. She has worked as Chief Editor of Business Chronicle, an online magazine based in London. Wicks holds a Bachelor of Arts (Honors) in journalism and a Master of Business Administration from the London School of Economics.