Scribd
Upload
12 views19 pages

journal

The document explains the distinction between capital and revenue expenditure, highlighting that capital expenditure is for acquiring or improving assets, while revenue expenditure is for day-to-day operations. It also differentiates between capital and revenue receipts, noting that capital receipts are non-recurring and from non-operational sources, whereas revenue receipts are recurring and from normal business activities. Additionally, it outlines the rules of debit and credit for various types of accounts and the process of journalizing transactions.

Uploaded by

suyash.r24-26
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
12 views19 pages

journal

The document explains the distinction between capital and revenue expenditure, highlighting that capital expenditure is for acquiring or improving assets, while revenue expenditure is for day-to-day operations. It also differentiates between capital and revenue receipts, noting that capital receipts are non-recurring and from non-operational sources, whereas revenue receipts are recurring and from normal business activities. Additionally, it outlines the rules of debit and credit for various types of accounts and the process of journalizing transactions.

Uploaded by

suyash.r24-26
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 19

Accounting For Managerial

Decisions
Capital And Revenue Expenditure
Capital expenditure is an expenditure that is incurred for the purpose of acquiring or
improving a capital asset, such as machinery or equipment, with a view to earning
revenue over a number of years.
Revenue expenditure is the expenditure that is incurred in the course of the day-to-day
running of the business and is fully deductible in the year in which it is incurred
Examples of CapEx : Examples of Revenue
1. Property: Land, buildings, office space, Expenditure:
storage units, or other real estate 1. Rent paid for office
2. Equipment: Machinery, vehicles, space
construction equipment, tools, computers, 2. Salaries and wages paid
laptops, and phones to employees
3. Hardware and software: Servers, CRM, 3. Utility bills such as
ERP, cybersecurity, and infrastructure electricity, water, and
4. Intellectual property: Patents, copyrights, gas
trademarks, and licenses 4. Repairs and maintenance
5. Research and development: R&D expenses expenses
6. Upgrading assets: Modernizing production 5. Advertising and
lines, improving equipment efficiency, or promotional expenses
implementing energy-saving measures 6. Insurance premiums
7. Travel expenses
Capital And Revenue Expenditure
CapEX and RevEX
Capital Receipts and Revenue Receipts
Capital receipts
• These are non-recurring cash inflows from non-operational sources, such as selling
assets, borrowing, or equity investments.
• They are recorded on the balance sheet and can significantly impact a business or
government's financial position.
• Capital receipts are used to finance long-term assets or repay long-term debts, and
their main goal is to enhance financial viability.
• Examples of capital receipts include:
• Loans from banks
• Venture capital funding
• Loan payments
• Asset sales
• Investments
Capital Receipts and Revenue Receipts
Revenue receipts
•These are recurring income from day-to-day operations, such as selling goods
or services, or providing services.
•They are recorded on the income statement and affect a business's profit and
loss within the financial year.
•Revenue receipts are meant to cover ongoing expenses,
•and examples include:
•Sales revenue
•Fees for services rendered
•Interest earned on investments
•Grants received for specific projects or programs
A receipt on account of fixed assets is a capital receipt whereas a receipt on
account of current assets or circulating capital is a revenue receipt.
For example, sale proceeds from sale of fixed assets is a capital receipt while
proceeds from sale of stock-in-trade is a revenue receipt.
Capital profit from sale of fixed asset is to be shown in Profit and Loss
Accounts.
Distinction between Capital Receipts and Revenue Receipts
• Capital receipts are not obtained in the course of normal business activities of the
enterprise whereas revenue receipts are obtained in the course of normal business
activities.
• Capital receipts are usually obtained in case of a company from issue of shares,
debentures, borrowings and sale of fixed assets or investments. Revenue receipts are
usually obtained from sale of goods, rendering of services or use of enterprise
resources yielding interest, royalties and dividend.
• Capital receipts are usually of non-recurring nature and revenue receipts are usually
of recurring nature.
• Capital receipts from financing activities such as issue of shares, debentures and
borrowings are shown on the liabilities side of the balance sheet as these receipts
create liabilities payable at a future date whereas interest on borrowings is shown as a
charge in the Profit and Loss Account and dividends to shareholders are shown as
appropriation of profit in the appropriation section of Profit and Loss Account. Interest
accrued/outstanding will also be shown as a liability.
State with reasons whether the following are capital or revenue receipts :

(a) Introduction of capital by the owner ₹10,00,000.


(b) Amount realised from sale of old machinery ₹50,000 (value ₹48,000).
(c) Sale of goods for cash ₹ 10,000.
(d) Cash received from debtors ₹20,000.
(e) Sale of investments for ₹ 40,000 (book value ₹ 44,000).
(f) Interest received on investments ₹ 3,000.
(b) Amount realised from sale of old machinery : ₹50,000 is a
capital receipt. Capital profit on sale of ₹ 2,000 is to be shown in
Profit and Loss Account.
(c) Sale proceeds from sale of goods ₹ 10,000 is a revenue receipt
as it is a receipt in the course of normal business activities of the
enterprise.
(d) Cash received from debtors ₹ 20,000 is a revenue receipt as this
is in the course of normal business activities of the enterprise.
(e) Sale proceeds from investments ₹ 40,000 is a capital receipt
and capital loss of ₹ 4,000 is to charged in the Profit and Loss
Account.
(f) Interest on investments ₹ 3,000 is a revenue receipt as use of
enterprise resources yielding interest is revenue.
Types of Accounts
Rules of Debit and Credit
All accounts are divided into five categories for the purposes of recording the transactions:
(a) Asset
(b) Liability
(c) Capital
(d) Expenses/Losses, and
(e) Revenues/Gains.

Two fundamental rules are followed to record the changes in these accounts:
(1) For recording changes in Assets/Expenses (Losses):
I. Increase in asset is debited and decrease in asset is credited
II. Increase in expenses/losses is debited, and decrease in expenses/losses is credited
Assets
Increase Decrease
+ -
Debit Credit
For recording changes in Liabilities and Capital/Revenues (Gains):

Increase in liabilities is credited and decrease in liabilities is debited

Increase in capital is credited and decrease in capital is debited


Increase in revenue/gain is credited and decrease in revenue/gain is debited
Journal
• The book in which the transaction is recorded for the first time is called
journal or book of original entry.
• The source document, as discussed earlier, is required to record the
transaction in the journal.
• This practice provides a complete record of each transaction in one
place and links the debits and credits for each transaction.
• After the debits and credits for each transaction are entered in the
journal, they are transferred to the individual accounts.
• The process of recording transactions in journal is called journalising.
Journal Format

You might also like