Capital and Revenue Expenditure/ Income — Flashcards

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It is essential because revenue items are shown in the Trading and Profit and Loss Account, while capital items are shown in the Balance Sheet. If the distinction is not made correctly, profit will be…

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Capital expenditure is expenditure that results in the acquisition of an asset or in an increase in the earning capacity of a business. Its benefit lasts for a long period, and it appears on the asset…

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Revenue expenditure arises out of and in the course of regular business transactions. Its benefit expires within the year, it is recurring in nature, and it is shown in the Trading and Profit and Loss…

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According to Carter, capital items are those which give benefit in so many accounting years, whereas revenue items are those which give benefit in the related accounting year only.

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There is no fixed universal rule because classification depends on the nature of the business and the purpose of the expenditure. For example, furniture purchased by a cloth merchant is capital expend…

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Capital expenditure is permanent in nature, can be seen and touched, is usually non-recurring, is mostly used for purchasing assets, increases the earning capacity of the business, and is shown on the…

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Revenue expenditure is temporary in nature, cannot be seen as an asset, does not create an asset, is recurring, is incurred for day-to-day business running, and is shown in the Trading and Profit and …

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Wages or salaries are normally revenue in nature, but when they are paid for erecting a new plant or constructing a fixed asset, they become capital expenditure because they are directly connected wit…