Classification of Income, Receipts and Expenditure
Capital and Revenue Expenditure, Receipts, Profit/Loss
Final Accounts are prepared by the businessman at the end of the financial year
in order to find out the true profit/loss of the business and the position of the
total assets (properties) and the liabilities of the business. For the purpose of
preparing the financial statements it is necessary to know whether out of the
total expenditure incurred in a given period in a business which item of
expenditure or income is capital or revenue in nature. This is because all items of
a revenue nature have to be taken to the Trading and Profit and Loss Account as
they affect the Profit/Loss and the items of Capital nature are to be taken to
Balance Sheet as they affect the financial position.
Expenditure: Expenditure means incurring a liability, disbursement of cash or
transfer of property for the purpose of obtaining assets, goods or services.
Expenditure is classified mainly as Capital and Revenue, but there is one
more classification which is Deferred Revenue Expenditure.
1. Capital Expenditure: Any expenditure is treated as capital
expenditure if it fulfils any or all of the following conditions:
It involves purchase/ acquisition of fixed assets. E.g.
Purchase of Plant and Machinery, Land, Building, Vehicle,
etc
It increases the earning capacity of the business (E.g.
Additions to Building, Additional seats in a cinema theatre)
or decreases the working expenditure (petrol engine of a
motor carinvolving
Expenses convertedthe
to right
dieselto
engine,
carry etc.).
on the Therefore it is
business. not
(E.g.
always necessary
Acquisition that a new
of Goodwill, asset Trademarks,
Patents, is created. Copyrights,
etc.)
Expenditure incurred in putting a new asset in working
It is to be noted
condition thatother
and any the benefit
expenditure
of suchincidental to it.(E.g.
expenditure lasts
installation
for more than/ erection of machinery,
one financial year. wages for making
furniture,
2. Revenue etc.) Any expenditure is treated as a revenue
Expenditure:
expenditure if it fulfils any of the following conditions:
It is an expenditure the benefit of which is not likely to be
available for more than one financial year.
Capital and Revenue Expenditure, Receipts, Profit/Loss
Final Accounts are prepared by the businessman at the end of the financial year
in order to find out the true profit/loss of the business and the position of the
total assets (properties) and the liabilities of the business. For the purpose of
preparing the financial statements it is necessary to know whether out of the
total expenditure incurred in a given period in a business which item of
expenditure or income is capital or revenue in nature. This is because all items of
a revenue nature have to be taken to the Trading and Profit and Loss Account as
they affect the Profit/Loss and the items of Capital nature are to be taken to
Balance Sheet as they affect the financial position.
Expenditure: Expenditure means incurring a liability, disbursement of cash or
transfer of property for the purpose of obtaining assets, goods or services.
Expenditure is classified mainly as Capital and Revenue, but there is one
more classification which is Deferred Revenue Expenditure.
1. Capital Expenditure: Any expenditure is treated as capital
expenditure if it fulfils any or all of the following conditions:
It involves purchase/ acquisition of fixed assets. E.g.
Purchase of Plant and Machinery, Land, Building, Vehicle,
etc
It increases the earning capacity of the business (E.g.
Additions to Building, Additional seats in a cinema theatre)
or decreases the working expenditure (petrol engine of a
motor carinvolving
Expenses convertedthe
to right
dieselto
engine,
carry etc.).
on the Therefore it is
business. not
(E.g.
always necessary
Acquisition that a new
of Goodwill, asset Trademarks,
Patents, is created. Copyrights,
etc.)
Expenditure incurred in putting a new asset in working
It is to be noted
condition thatother
and any the benefit
expenditure
of suchincidental to it.(E.g.
expenditure lasts
installation
for more than/ erection of machinery,
one financial year. wages for making
furniture,
2. Revenue etc.) Any expenditure is treated as a revenue
Expenditure:
expenditure if it fulfils any of the following conditions:
It is an expenditure the benefit of which is not likely to be
available for more than one financial year.
