Question

What is the effect of Revenue Expenditure on the government's assets and liabilities?

Options

• It reduces liabilities but does not create assets

• It does not create assets and does not reduce liabilities

• It creates assets and reduces liabilities

• It creates assets but does not reduce liabilities

Answer 1

Revenue Expenditure neither creates assets nor reduces liabilities. This is the defining characteristic that separates it from Capital Expenditure, which either creates physical or financial assets or reduces financial liabilities.