Accounting for Revenue and Capital Expenditures

Subsequent expenditures made on property, plant, and equipment may be in the form of either capital expenditures or revenue expenditures. The distinction between capital and revenue expenditures is often hazy, depending on the accounting policies developed by management. However, the distinction is important because it affects how income in current and future periods is viewed. Accounting for Reve…

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Capital vs Revenue Expenditures

Definitions Expenditure In accounting, the term expenditure refers to the payment of an asset or the incurrence of liability in exchange for another asset or service rendered. Capital Expenditure Expenditures occur in cash or on credit. The process results in firms receiving another asset, such as a delivery truck, or using a service, such as repairing a delivery truck. When the expenditure produc…

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Rules for Determining Revenue Expenditures

Revenue Expenditures Income and revenue are not the same. Income of any form is called revenue, whereas revenue is any income or expenditure. Revenue expenditures are the amounts spent on routine business expenses, such as salaries paid to employees or rent. Given that revenue expenditures offer benefits to businesses for the current accounting period, they are debited as expenses in the trading a…

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Rules for Determining Capital Expenditure

If an expenditure is incurred for one of the following purposes, it is regarded as capital. This means that it will be defined as capital expenditure. 1. Purchase of Fixed Assets When an amount is spent to purchase fixed assets on a long-term basis, this means the purchase was made to earn profit and not for resale. Such expenditure is regarded as capital expenditure. Example If an electronics dea…

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Capital and Revenue Expenditures

There are two main types of expenditures in business: Capital expenditures Revenue expenditures This article provides a brief overview of capital and revenue expenditures and offers definitions. Capital Expenditures Definition and Explanation of Capital Expenditures An expenditure is a capital expenditure if the benefit of the expenditure extends to several trading years. Capital expenditure may i…

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Capitalized or Deferred Revenue Expenditure

Definition Heavy expenditure of a revenue nature, the benefit of which is available for a period of two or three (or even more) years, is known as capitalized or deferred revenue expenditure. Explanation This expenditure is not written off from the profits of the year in which it was incurred; instead, it is spread over the number of years for which the benefit is expected to last. To maintain ste…

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Difference Between Capital and Revenue Expenditures

It can be hard to decide whether a particular item of expenditure is of a capital nature or a revenue nature. Some expenses may lie on the borderline, making it complex to determine whether they are capital or revenue expenditures. This difficulty is easily avoided by answering the following questions: Is the expenditure incurred in acquiring a fixed asset? Is the expenditure incurred for the impr…

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Items of Revenue Expenditures Becoming Capital Expenditures

The distinction between revenue expenditure and capital expenditure is usually made according to accounting principles. Revenue expenditure is an expenditure that does not charge to the current period’s revenues. On the other hand, a capital expenditure is an investment in a company’s long-term assets. In accounting, a capital expenditure raises the asset value of a company and therefore affects t…

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Capital and Revenue Payments

Definition Expenditure is the full amount incurred by a business concern, whether paid or not, while the term “payment” refers to the amount actually paid. Payments come in two types: Capital payments Revenue payments Capital Payments Capital payments are the amounts actually paid on account of some capital expenditures. Example Furniture is purchased from Wild Wood Furniture for $7,000. Initially…

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Capital and Revenue Receipts

Receipts are the amounts actually received. The receipts of a business are of two kinds: Capital receipts Revenue receipts Capital Receipts Explanation Capital receipts include the following: Receipts from the sale of an organization’s fixed assets Payments into a business either by the proprietor of the business or by shareholders of a company to start a business or increase the capital Receipts…

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