Financial & Management Accounting :
Capital and Revenue
The main objective of accounting is to ascertain the true profit or loss and to reveal the financial position of a business at the end of financial year.To achieve the objectives, the business must take a clear distinction between its capital and revenue
Capital
capital concerned with the payment for assets and receipt from the owners and outsiders. It is the item of the balance sheet. It is of long-term nature and its benefit is long-lasting.
Revenue
Revenue item is concerned with the payment for producing or buying goods and receipt from sale of goods and services. Those revenue incomes and expenditures are the items of trading and profit and loss accounts. It is of short-term nature. Its benefit expires within the year.
Capital and Revenue Expenditure
Capital Expenditure
Capital Expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods.
Capital Expenditure may include the following: Purchase costs (less any discount received) , Delivery costs ,Legal charges, Installation costs , Up gradation costs , Replacement costs.
Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. machine will produce the same quantity of biscuits as it did when it was first put to use).
Revenue costs therefore comprise of the following:
Repair costs, Maintenance charges , Repainting costs , Renewal expense Replacement costs
Capital and Revenue
The main objective of accounting is to ascertain the true profit or loss and to reveal the financial position of a business at the end of financial year.To achieve the objectives, the business must take a clear distinction between its capital and revenue
Capital
capital concerned with the payment for assets and receipt from the owners and outsiders. It is the item of the balance sheet. It is of long-term nature and its benefit is long-lasting.
Revenue
Revenue item is concerned with the payment for producing or buying goods and receipt from sale of goods and services. Those revenue incomes and expenditures are the items of trading and profit and loss accounts. It is of short-term nature. Its benefit expires within the year.
Capital and Revenue Expenditure
Capital Expenditure
Capital Expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods.
Capital Expenditure may include the following: Purchase costs (less any discount received) , Delivery costs ,Legal charges, Installation costs , Up gradation costs , Replacement costs.
Revenue Expenditure
Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time. For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. machine will produce the same quantity of biscuits as it did when it was first put to use).
Revenue costs therefore comprise of the following:
Repair costs, Maintenance charges , Repainting costs , Renewal expense Replacement costs
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