explaining the differences between revenue expenditures and capital expenditures

Feb 3rd, 2012
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explaining the differences between revenue expenditures and capital expenditures during a useful life and identifying any similarities. Briefly explain the entries of revenue expenditures and capital expenditures .

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Answer ---------------------------------------Capital and Revenue ExpenditureExpenditure on fixed assets may be classified into Capital Expenditure and Revenue Expenditure. The distinction between the nature of capital and revenue expenditure is important as only capital expenditure is included in the cost of fixed asset. Capital Expenditure--------------------Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset.The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (e.g. Delivery costs).Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include the following:Purchase costs (less any discount received)Delivery costsLegal chargesInstallation costsUp gradation costsReplacement costsAs capital expenditure results in increase in the fixed asset of the entity, the accounting entry is as follows:Debit Fixed Assets Credit Cash/PayableRevenue Expenditure-------------Revenue expenditure incurred on fixed assets include costs that are aimed at 'maintaining' rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obt

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