Capital Revenue expenditure receipts By Aditi Jain Aishwariya

Capital & Revenue expenditure & receipts By: Aditi Jain, Aishwariya Chauhan, Akishta Jain and Swati Yadav

The Types… Expenditure Receipts Capital Revenue

Revenue Expenditure

Definition v. A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. v. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense.

Characteristics v Revenue expenditure consists of expenditure incurred in one period of the accounting , the full benefit of which is enjoyed in that period only. v This does not increase the earning capacity of the business but it is incurred to maintain the earning capacity of the business. v It includes all those expenses which arise in the normal course of business. v The accounting entry to record revenue expensiture is: Debit Revenue Expense(Income Statement) Credit Cash/Payable

Examples v 1. Wages or salary paid to a factory worker. v. Buying machine oil for lubrication.

Examples v Expenditure incurred in the ordinary conduct and administration of business , i. e. rent , carriage of saleable goods etc. v Electricity or power required to run machinery or motor. and so on…

Revenue Receipts

Definition v. They are the outcome of firm’s activity in the accounting period. Money received on sale of goods in trade or something received on rendering of services , it is known as Revenue Receipts.

Characteristics v. Revenue Receipts consists of receipts received in one period of accounting, the full benefit of which is enjoyed in that period only. v. It includes all those receipts which are received in the normal course of business. v. The accounting entry to record revenue receipts is: Debit Cash/ Receivable Credit Revenue Receipts (Income Statement)

Examples v. Sale of machinery, building or furniture. v Interest received on deposits. v. Dividend received. v. Rent received v. Commission received. v. Royalties.

CAPITAL RECEIPTS

DEFINATION Receipts which are non-recurring (not received again and again) by nature and whose benefit is enjoyed over a long period are called "Capital Receipts“. Their utility does not end in one accounting year.

TREATMENT v. Capital Receipts either increase a liability or decrease an asset. v. Thus, these are shown in BALANCE SHEET.

MAIN SOURCES OF CAPITAL RECEIPTS v. The sale of fixed assets, which are tangible or intangible property owned or controlled by your business. For example : sale of land, sale of patents, sale proceeds of an old piece of furniture, etc. v The issue of shares in the business. For example : issue of equity shares by a company, etc. v The issuing of debt instruments to your business. For example : Bank loan taken by the business, introduction of fresh capital into the business by proprietor, etc.

CAPITAL EXPENDITURE • Meaning • Examples • Comparison with deferred revenue expenditure

v It is an expenditure incurred to acquire assets or to improve the existing assets which will increase the earning capacity of the business I. e will give benefits to the business in more than one accounting year. v It may incurred to acquire tangible or intangible assets v It is shown on the asset side of the balance sheet

Examples: Purchase of: v Buildings (including subsequent costs that extend the useful life of a building) v Capital leases v Computer equipment v Office equipment v Furniture and fixtures (including the cost of furniture that is aggregated and treated as a single unit, such as a group of desks) v Intangible assets (such as a purchased taxi license or patent) v Land (including the cost of upgrading the land, such as the cost of an irrigation system or a parking lot) v Machinery (including the costs required to bring the equipment to its intended location and for its intended use) v Software v Vehicles

Deferred Revenue Expenditure v. In this case, the value received from the expenditure is not immediate. Buying a training program may add skills to office labour forces over just a few days, but not all effects occur so quickly. Sometimes the benefit is delayed over months or even years. In this case, the business creates a deferred revenue expenditure account to match up the expense with the value received, similar to depreciation accounts but for a different set of activities.

Example v A common example for deferred revenue expenditures is in marketing. Advertising, according to many theories, has a delayed effect. This means that the business can spend money on an advertising campaign, but not realize increased sales until several months down the line when customers absorb the full impact of the ads. Some theories disagree that advertising is so delayed, but if the business accounts for it then it will create a deferred revenue expenditure account in order to match up the delayed value with the amortized costs of the advertising.

Difference between capital expenditure and capital revenue

The Difference… Capital Expenditure Revenue Expenditure v It is of non-recurring nature. v Revenue expenditure is of recurring nature. v It is incurred in acquiring permanent assets or v Revenue expenditure is improving their existing incurred in managing day-to capacity. -day activities of the organization and v Capital expenditure gives maintaining its fixed assets. benefit over a number of v Revenue expenditure gives years benefit not for more than one year.

The Difference. . Capital Expenditure Revenue Expenditure v Capital expenditure helps in increasing earning capacity of the business. v Capital expenditure is shown on asset side of the balance sheet. v Revenue expenditure helps in earning capacity of the business. v Revenue expenditure is shown on the debit side of the trading and profit and loss account.

Difference between capital receipts and revenue receipts

The Difference… Capital Receipts Revenue Receipts v Capital receipt is of nonv Revenue receipt is of recurring nature. v Main items of capital receipt v Main items of revenue are capital and loan, which receipt are sale of affect financial position of merchandise, discount and the business. commission, which affect operating results of the business.

The Difference… Capital Receipts Revenue Receipts v Capital receipt is shown on the liabilities side of the balance sheet v Revenue receipt is shown on the credit side of the trading and profit and loss accounts.

Get ready for a quizzz

Heavy expenditure incurred on advertisement at the time of introducing a new product is a deferred revenue expenditure. True/ False?

Expenses incurred to keep the machine in working condition is a capital expenditure. True / false ?

Overhauling expenses of a secondhand machinery purchased are revenue expenditure. True/False?

Major repair charges including replacement of certain worn-out parts incurred before using a secondhand car purchased recently is a capital expenditure. True/ False?

Expenditure which results in acquisition of permanent asset of enduring benefit to the business is a capital expenditure. True/False?

Amount spent for replacement of worn out part of a machine is capital expenditure. True/False?

Temporary shed put up at project site to house materials is a capital expenditure. True/ false?

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