Acc0206. Capital & Revenue Expenditures & Receipts

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Revision Notes for CPT
Unit: Capital & Revenue Expenditures & Receipts
Chapter: Accounting Proccess
Subject: Fundamentals of Accounting

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Acc0206. Capital & Revenue Expenditures & Receipts

  1. 1. CPTSuccess<br />Revision Notes – Fundamentals of Accounting<br />Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br />
  2. 2. Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br /><ul><li> Thebasic consideration in distinction between Capital and revenue expenditure are:
  3. 3. Nature of business
  4. 4. Recurring nature of expenditure
  5. 5. Purpose of expenses
  6. 6. Effect on revenue generating capacity of business
  7. 7. Materiality of the amount involved</li></ul>©<br />Revision Notes - Fundamentals of Accounting<br />CPTSuccess<br />www.cptsuccess.com<br />
  8. 8. Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br /><ul><li>Capital Expense
  9. 9. Investment purpose not intended to be sold at profit in normal course of business
  10. 10. Outlay resulting in the increase or acquisition of an asset orIncrease in the earning capacity of the business
  11. 11. Amount added to Asset value and depreciated over the useful life of Asset
  12. 12. Capital Receipts
  13. 13. Receipts derived “not” from normal activities of business
  14. 14. Reflected as Liabilities or Share Capital in Balance Sheet
  15. 15. E.g. Bank Loans, Capital infusion by Shareholders</li></ul>©<br />Revision Notes - Fundamentals of Accounting<br />CPTSuccess<br />www.cptsuccess.com<br />
  16. 16. Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br /><ul><li>Revenue Expense
  17. 17. Costs for day to day running of the business
  18. 18. Expenditure on maintenance of Capital asset
  19. 19. Charged to P&L Account
  20. 20. E.g. Expenses for Salary, Rent, Interest, Depreciation etc.
  21. 21. Revenue Receipts
  22. 22. Receipts from normal activities of business
  23. 23. Treated as Revenue in P&L Account
  24. 24. E.g. Revenue from sales of goods and services</li></ul>©<br />Revision Notes - Fundamentals of Accounting<br />CPTSuccess<br />www.cptsuccess.com<br />
  25. 25. Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br /><ul><li>Deferred Revenue Expenditure
  26. 26. The Expenditure which has been incurred in an accounting period but it is applicable further periods also. E.g. Advertisement Cost
  27. 27. The nature of some expenses is such that though they do not create an asset but their benefit is spread over more than one accounting period.
  28. 28. These are mostly non-recurring and large in amount.
  29. 29. In such circumstances instead of debiting the entire amount of these expenses to Profit and Loss of the year, it may be spread over a number of years with a proportionate amount being charged each year to P&L Account.</li></ul>©<br />Revision Notes - Fundamentals of Accounting<br />CPTSuccess<br />www.cptsuccess.com<br />
  30. 30. Chapter 2. Accounting Process<br />Unit 6: Capital and Revenue Expenditures and Receipts<br /><ul><li>Deferred Revenue Expenditure
  31. 31. The portion that is still not charged to Profit and Loss is shown in the balance sheet on the asset side after Capital Work in Progress and is called Deferred Expenditure.
  32. 32. Examples are Expenses incurred to start a business, Initial marketing cost to launch a product etc.</li></ul>©<br />Revision Notes - Fundamentals of Accounting<br />CPTSuccess<br />www.cptsuccess.com<br />
  33. 33. CPTSuccess<br />

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