Financial Statements - I

benefit of expenditure extends more than one accounting period, it is termed as capital expenditure . An example can be payment to acquire furniture for use in the business. Furniture acquired in the current accounting period will give benefits for many accounting periods to come. The usual examples of capital expenditure can be payment to acquire fixed assets and/or to make additions/ extensions in the fixed assets.

Following points of distinction between capital expenditure and revenue (a) Capital expenditure increases earning capacity of business whereas revenue expenditure is incurred to maintain the earning capacity. (b) Capital expenditure is incurred to acquire fixed assets for operation of business whereas revenue expenditure is incurred on day-to-day conduct of business. (c) Revenue expenditure is generally recurring expenditure and capital expenditure is non-recurring by nature. (d) Capital expenditure benefits more than one accounting year whereas revenue expenditure normally benefits one accounting year.

(e) Capital expenditure (subject to depreciation) is recorded in balance sheet whereas revenue expenditure (subject to adjustment for outstanding and prepaid amount) is transferred to trading and profit and loss account.