Question

in about 200 words (total), answer the following questions

Distinguish between the accounting for capital expenditures and revenue expenditures.

Answer 1

Revenue expenditure are incurred for a specific revenue transaction whereas capital expenditure incurred for fixed cost for a long period of time. Revenue expenditure are generally for a short period of time which can be less than a year.

In accounting terms revenue expenditure is to be recorded as an expense in the income statement which is to be reduced from the net income of the company, whereas the capital expenditure is to be added to the cost of asset for which the expenditure is incurred thus increasing the total cost of asset.

Revenue expenditure can we like repairs and maintenance cost, salary cost or any other direct or indirect cost which are incurred by the company in the operation of its business. Whereas the capital expenditure on those expenditure which are incurred in order to bring the working condition for example installation cost or shipping cost of the asset.

Revenue expenditure affects the income statement as it is debited in the income statement on the other hand capital expenditure affects the balance sheet as it increases the asset value. Capital expenditure are of high value items whereas revenue expenditure are not of high value items.

Capital expenditure are the expenditure due to which life of the asset increases or its efficiency increases whereas on the other hand revenue expenditure is expenditure by which the life on the efficiency of the asset do not increase and therefore not added to the cost of asset.

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