Chapter 2

Classification of Expenditure and Receipt into Revenue and Capital Categories

Let us learn about the difference between a revenue item and a capital item.

We will first look at expenditure.

“Capital expenditure” can be defined as follows.

Any expenditure that is incurred in construction or purchase of prop-erty that is intended to assist in generating profits or permanently enlarge, extend, or improve existing property, so that its profit earning capacity is increased. Its direct benefit extends over several accounting periods and it replaces cash by permanent asset.

Whereas “revenue expenditure” has the following characteristics.

  • Its effect is temporary, that is, benefit is received within the accounting year.
  • Neither has a new ...

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