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Capital and Revenue Expenditure
Capital Expenditure
Capital Expenditure is that expenditure which is incurred a) For acquiring or bringing into existence an asset or advantage of an enduring benefit or b) For extending or improving a fixed asset or c) For substantial replacement of an existing fixed asset. The benefit on such expenditure is going to accrue for more than one year. The examples of capital expenditure include cost of land and building, plant and machinery, furniture and fixtures, etc. Such expenditure normally yields benefits which extend beyond the current account period
Revenue Expenditure
Revenue Expenditure is that expenditure which is incurred for maintaining Productivity or earning capacity of a business. Such expenditure yields benefits in the current accounting period. The examples of revenue expenditure include office and Administrative expenses such as Salaries, Rent, Insurance, Telephone Expenses., Electricity Charges, etc.
Deferred Revenue Expenditure
Deferred Revenue Expenditure is that expenditure which yields benefits which extend beyond a current accounting period, but no relatively a short period as compared to the period for which a capital expenditure is expected to yields benefits. Such expenditure should normally be written off over a period of 3 to 5 years. The examples of such, expenditure include heavy Advertising Compaign Research & Development Expenditure
Difference between Capital & Revenue Expenditure
Capital Expenditure
- It is incurred for acquiring fixed assets for use in the business. 2) It increases the earning capacity of business. 3) The benefits of capital expenditure extends to years beyond which it is incurred. 4) It is shown in the balance sheet in the form of assets.
Revenue Expenditure
- It is incurred to run the business. 2) It does not increases the capacity of the business 3) Usually the benefit is consumed in the period in which it is incurred except in the case of deferred revenue expense. It is taken to the trading or Profit & Loss A/c of the concern.
Capital Receipts & Revenue Receipts:
Capital receipts are the receipts from the non-trading transactions like sale of fixed assets. issue of share capitals. raising of loans etc. These receipts are shown in balance sheet. Capital receipts other than sale Proceeds of assets. Create a liability. Revenue Receipts are the receipts obtain in codes of normal trading operations e.g. sale of goods, interest income etc. These receipts are shown in trading and Profit & Loss A/c. These receipts do not create any liability. Recommended Articles
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