The document outlines the distinctions between capital and revenue items in accounting, including expenditures, receipts, losses, and profits. Capital expenditures and receipts are non-recurring and related to fixed assets, while revenue items are recurring and pertain to day-to-day operations. It also discusses deferred revenue expenditure, which involves significant costs that benefit the business over multiple years.
The document outlines the distinctions between capital and revenue items in accounting, including expenditures, receipts, losses, and profits. Capital expenditures and receipts are non-recurring and related to fixed assets, while revenue items are recurring and pertain to day-to-day operations. It also discusses deferred revenue expenditure, which involves significant costs that benefit the business over multiple years.
The document outlines the distinctions between capital and revenue items in accounting, including expenditures, receipts, losses, and profits. Capital expenditures and receipts are non-recurring and related to fixed assets, while revenue items are recurring and pertain to day-to-day operations. It also discusses deferred revenue expenditure, which involves significant costs that benefit the business over multiple years.
The document outlines the distinctions between capital and revenue items in accounting, including expenditures, receipts, losses, and profits. Capital expenditures and receipts are non-recurring and related to fixed assets, while revenue items are recurring and pertain to day-to-day operations. It also discusses deferred revenue expenditure, which involves significant costs that benefit the business over multiple years.
Capital & Revenue items are taken in final accounts. All revenue items are shown in the trading and profit & loss account. All capital items are entered in the balance sheet.
TYPES:
1. Capital Expenditure and Revenue Expenditure.
2. Capital Receipts and Revenue Receipts. 3. Capital Loss and Revenue Loss. 4. Capital Profit and Revenue Profit.
CAPITAL EXPENDITURE:
Is an expenditure whose benefit is not exhausted in just one year, but the benefit is available for more than one year. It can also be defined as that expenditure which results in the acquisition of any fixed assets or which adds to the productivity of an asset.
Example: cost of fixed assets, cost of additions or expansion to existing fixed assets, any expenditure incurred in connection with the purchase of fixed assets.
REVENUE EXPENDITURE:
Refers to expenditure whose benefit is exhausted within one year. It is incurred for day-to-day running of the business or for maintaining the fixed assets of the business in an efficient working condition.
Example: salary paid, rent paid, printing charges etc.
CAPITAL EXPENDITURE REVENUE EXPENDITURE
1. It is of non-recurring nature because Is recurring in nature as it is incurred on day-to- such expenditure is not incurred every day operations. day. 2. It is incurred for acquisition or It is incurred for the day-to-day conduct of installation of fixed assets to be used in business. the business. 3. It increases the earning capacity of the It does not increase the earning capacity as it is business. incurred for maintaining the existing earning capacity. 4. It is shown in the balance sheet as an It is shown as an expense in trading A/c or asset. profit & loss A/c.
CAPITAL RECEIPTS:
It refers to the receipts of non-recurring nature such as additional capital from owners, loans raised by the firm and money obtained from sale of fixed assets. They are not received regularly. They will appear in the Balance Sheet.
Example: amount received on sale of fixed assets or investments, amount received by way of loans, government grants, capital raised by an issue of shares and debentures, etc. REVENUE RECEIPTS:
They are recurring in nature. They are received regularly. They are small in amount. They will appear in the Profit & Loss A/c or Income & Expenditure A/c.
Example: sale proceeds of goods, interest received on loans granted, interest received on investments, rent received, dividend received, commission received, etc.
CAPITAL RECEIPTS REVENUE RECEIPTS
1. It is non-recurring in nature. It is recurring in nature. 2. It involves creation of a liability or It neither creates a liability nor involves reduction in the value of fixed assets. reduction in the value of fixed assets. 3. Shown in the liabilities side of the Credited to the Trading or Profit & Loss A/c. balance sheet.
CAPITAL LOSSES: are the losses which are not related with the normal course of business.
Example: loss on issue of shares & debentures, loss on sale of fixed assets, loss on fixed assets by fire or accident, loss by theft after business hours.
REVENUE LOSSES: are the losses which are incurred in the normal course of business. Example: bad debts, loss of stock by theft or fire, embezzlement or misappropriation of cash by employees during usual business hours. CAPITAL PROFIT: refer to profits earned on sale of fixed assets and in connection with the issue of shares and debentures.
Example: when shares are issued at a premium, the amount of premium is capital profit.
REVENUE PROFIT: mean the profits earned in the normal course of business. Example: if goods costing 40,000 are sold for 50,000, 10,000 is revenue profit.
DEFERRED REVENUE EXPENDITURE: a heavy expenditure of revenue nature incurred for getting a benefit which extends to two or more years. It is so called because its writing off is deferred or postponed to the next year.
Example: Heavy advertising expenses, heavy repairs, preliminary expenses, research expenses, expenses incurred to move business to a more convenient place.
