Distinction in Capital Expenditures and Revenue Expenditure

Dear Friends, We know very well about the expenses which we make during the each financial year. Income and Expenses are most important part of each business. Income increase the profit and tax liability of our business, while expenses reduce our “Gross Profit” from Trading account and “Net Profit” from Profit and Loss account and also reduce our tax liability. There are different types of expense made in our business like Direct expenses, Indirect expense, Capital expenditure, Revenue expenditure and many more. If you want to become a successful accountant then It is very necessary to know what is the distinction in capital expenditures and revenue expenditure.

Capital expenditures and revenue expenditure

Today we talk about the Capital Expenditure and Revenue Expenditure in the business. We already discuss about Definition Scope and Process of Accounting in previous post.

Meaning of Capital Expenditure:

Capital expenditure are those expenses which benefit is not expired in one accounting period. It includes purchased of assets for earning income and increasing the profitability of business.

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Example:
• Purchases of land, building, machinery.
• Cost of acquisition of long-term rights and benefits (e.g. patents, copyrights)
• Cost of overhauling second-hand machines
• Cost of additions or extensions to existing assets

Meaning of Revenue Expenditure

These expenses are incurred for the smooth running of business. It expired in one accounting period.

Example:
• Salaries and wages
• Rent and rates for office or factory
• Depreciation of fixed assets
• Purchases of raw materials
• Insurance premium
• Taxes and legal expenses

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Meaning of Deferred Revenue Expenditure:

There is some expenditure which is revenue in nature but their amount is not wiping out in one accounting period. Effects of those expense in future. Like advertisement, preliminary expense.

I hope you like this capital expenditures and revenue expenditure article from which you will be able to easily understand capital expenditures and revenue expenditure without any extra efforts. If feel any problem in this guide then please use comment box. Thanks to all.

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