Capital and Revenue Items:
Learning Objectives:
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Define explain and give examples capital and
revenue expenditures, receipts, payments, profits and losses.
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What is the difference between capital and
revenue expenditures?
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What are the exceptions to the general rule of
capital and revenue expenditures?
Difference between capital and revenue
expenditures affects the fundamental principle of correct accounting. Proper
adjustments are necessary before preparation of the final accounts. All
items of capital and expenditure will find place in the balance sheet
whereas all items of revenue expenditure will be included in the profit and
loss account. If any incorrect adjustment or allocation is made between
these expenditures, this will falsify the final results as disclosed
by the revenue account or the balance sheet.
Capital
Expenditures:
Expenditure means the amount spent. All capital expenditures represent either an
asset or liability and are shown in the balance sheet.
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Revenue
Expenditures:
All revenue expenditures have to be deducted
from the income earned by the firm. That is to say, all revenue items will
be taken to the profit and loss account.
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Difference Between Capital and Revenue Expenditures
Capital and Revenue Receipts, Payments, Profits and Losses:
Receipts refer to the actual amounts of cash
received. They can be either of capital nature or revenue nature.
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Exceptions to the General Rules and More About Capital
and revenue Expenditures:
Capitalized or deferred revenue expenditures,
exceptions to the general rule, preliminary expenses and more about capital
and revenue expenditures
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