What is the difference between the accounting for capital expenditures and revenue expenditures? What would be...

What is the difference between the accounting for capital expenditures and revenue expenditures? What would be the result if the two categories were not separated?

Expert Solution

Capital expenditure

capital expenditure is recorded as an asset, rather than charging it immediately to expense. It is classified as a fixed asset, which is then charged to expense over the useful life of the asset, using depreciation.

Revenue expenditure

revenue expenditure is a cost that will be an expense in the accounting period when the expenditure takes place. Revenue expenditures are often discussed in the context of fixed assets. The revenue expenditures take place after a fixed asset had been put into service and simply keeps the asset in working order.

If both are not separated it will have a incorrect impact on financial statements.

Revenue expenditure is debited in income statement whereas the capital exp is capitalised and depreciation is charged.

A capital expenditure is not treated as a revenue expenditure on the income statement or the balance sheet.

For true and fair view They must be classified correctly.

Plaese like if logic explained

ekkarill92 answered 1 year ago

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