Deferred revenue expenditure refers to revenue expenditures that provide benefits over multiple years and are capitalized rather than expensed in the year incurred. It includes preliminary and advertisement expenses, with the remaining balance shown as miscellaneous expenditure on the balance sheet. Revenue receipts arise from normal business activities, while capital receipts are non-recurring and not from regular operations, with the distinction being in their treatment and classification in financial statements.

1. Deferred Revenue expenditure
Meaning- Sometimes any revenue expenditure is such that its amount is more and its
usefulness remains for many years, such expenditure is called ‘deferred revenue
expenditure’. Such expenses are not charged to the profit and loss account of the year in
which they are incurred, they are charged to the profit and loss account of several years.
Example- (i) Preliminary Expenses, (ii) Deduction and commission on issue of shares and
debentures, (iii) Huge advertisement expenditure etc., (iv) If there is an extraordinary loss
then it is considered as deferred revenue expenditure.
Features — Following are the characteristics of deferred revenue expenditure.1. It is a
capital revenue expenditure.
2. Its profits are not used in the year to which they relate.
3. It is a sudden and usually large amount of money.
4. They are not written off from the profit of one year. A part of the expenses is written off in
the profit and loss account of the respective year. The remaining part of this expenditure is
shown in the balance sheet as miscellaneous expenditure.
Accounting Treatment
(1) Since deferred revenue expenditure yields future benefits also, its entire amount is not
charged to the profit and loss account in the current accounting year, but is treated as
capital.
(2) It is generally written off in 3 to 5 years.
(3) That part of deferred revenue expenditure which is written off in the accounting year is
treated as ‘Expense’ and transferred to Profit & Loss A/c.
(4) That part of deferred revenue expenditure which is not written off at the end of the
accounting year (which is to be written off in subsequent years), is shown in the assets part
of the balance sheet.

2. Difference between Deferred Revenue Expenditure and Prepaid Expenditure
Expenditure whose amount is more and their utility is spread over a number of years and not
till the current year, is called deferred revenue expenditure. Only a portion of these expenses
are considered revenue expenses for the accounting period. Example, a firm spent ₹
1,00,000 on advertising a new product. The benefit of this advertisement will be available for
5 years. Therefore, 1/5th of this expenditure i.e. ₹ 20,000 will be written off in the profit and
loss account considering it as revenue expenditure for the year and the remaining deferred
revenue expenditure will be shown in the balance sheet.
Expenses which are paid in one accounting period but their benefit is taken in the next
accounting period, such expenses are called prepaid expenses. The period of benefit of
prepaid expenses can be easily estimated but not of deferred revenue expenditure because
it is difficult to estimate the benefit of deferred revenue expenditure for many years.
Revenue Loss
Meaning – In general, the loss due to depreciation in the value of fixed assets of the
business is called loss of income.
Revenue loss is a term similar to revenue expenditure as it is shown in the profit and loss
account of the business in the same way as revenue expenditure.
But the word expense is different from loss. Expense refers to a situation in which the firm
receives some profit, while loss refers to a situation in which the firm does not receive any
benefit.
Example : 1. Loss in case of bad debts,
2. Loss due to fire,
3. Loss due to theft.
Classification of Receipts
Receipts are of two types –

3. (a) capital receipts, and
(b) revenue receipts.
Meaning — Capital receipts refer to such receipts which arise from some contingent or
non-recurring transactions and not from the normal operations of the business. In other
words, receipts which are not revenue are called capital receipts.
Features — Following are the features of capital receipts
(i) Capital gains are not received in the course of ordinary business operations.
(ii) Capital receipts are generally of non-recurring nature.
(iii) Capital receipts are shown in the liabilities side of the balance sheet.
(iv) Capital receipts are for a specific purpose.
Examples ::
(i) Capital employed by the owner.
(ii) Taking loan from the bank.
(iii) Amount received by the company from issue of shares.
(iv) Compensation for surrender of any right.
(v) Value of fixed assets even if received in instalments.
(vi) Amount of compensation on account of prior breach of any settlement/arrangement.
(vii) Proceeds from the sale of fixed assets.
Accounting Treatment
(1) Capital receipts are credited to the respective account.
(2) They are shown in the liabilities side of the balance sheet.
Revenue Receipts
Meaning — Revenue Receipts refer to those receipts that arise from normal business
activities.
Features — The main features of revenue receipts are as follows:
(a) Revenue receipts are of recurring nature, that is, they are received again and again.

4. (b) Revenue receipts relate to the normal business of the undertaking in the accounting year.
(c) Revenue receipts are not for any specific purpose.
(d) Revenue receipts are shown as income in the profit and loss account. These are used to
calculate the net profit and loss for the accounting year.
Example ::
(i) compensation received in respect of loss of stock,
(ii) the amount received from the sale of goods,
(iii) sale of building, land by a dealer in real estate,
(iv) subsidy or cash assistance for export promotion received from the Government,
(v) interest received from bank deposits or investments, (vi) Dividend received on shares,
etc.
Accounting Treatment – Revenue receipts are shown in the credit side of the trading or
profit and loss account.
Difference between Capital Receipts and Revenue Receipts
No. Base Capital gain Income receipt
1. Nature Capital receipts are generally of
non-recurring nature of income
Income receipts are
generally of recurring
nature.
2. Accounting It is shown in the liability part of the
position statement
It is shown in the income
statement (i.e. trading or
profit and loss account
3. Normal
Business
Operations
Capital receipts are those receipts
that are not received from
normal business activities.
Revenue receipts are
derived from normal
business activities
Test for Determining Capital Receipts And Revenue
We can get enough help in knowing the difference on the basis of the following rules and
facts:
(1) Circulating Capital and Fixed capital / Fixed Assets —- The amount received from
movable or current capital is called income receipt, whereas the amount received from fixed
capital or fixed assets is called capital receipt. Keep in mind, it is possible that an item which

5. is fixed capital for one business, the same item is considered as current capital in another
business.
Example- For a car dealer, the income received from the sale of a car is a revenue receipt,
while the income received from the motor car sold by Bharati Pustak Sadan is a capital gain
for him.
(2) Receipt in the hands of recipient is material —- In the hands of a recipient, which
receipt is capital and which is revenue, it is determined by its nature or nature. It is not
important from which source it is paid.
Example – Salary received by an employee is his income receipt even if his employer has
paid him out of his own capital. The amount received by a shareholder in exchange for his
preference shares is called capital gain, irrespective of the source from which it is given.
(3) Payer’s motive Irrelevant —- To determine whether a receipt is of capital nature or of
income nature, it is useless to look at the object of the payer.
(4) Receipt in Lieu of Income —- The amount received in exchange for the source of
income is a capital receipt, while the amount (amount) received in exchange for income is a
revenue receipt.
Example- The amount of compensation given to an employee on his removal from the job
by the employer is a capital gain. On the contrary, the amount of compensation payable by
the employer for temporary incapacity to work is a revenue receipt.
(5) Lum – sump Payment —- In order to determine whether a receipt is a capital receipt or
a revenue receipt, it is not a question of consideration whether it is a lump sum payment or a
lump sum payment or a periodic payment.
(6) Income Of Wasting Asset —- Income from capital destroyed or exhausted or used up
during the process of realisation is income. Therefore, income from mines and fisheries is
revenue receipt.
(7) Receipt on the Sacrifice or Rights —- When any amount is received on relinquishment
of any rights, it is considered as capital gain. On the contrary, the amount received in lieu of
loss of future profits is revenue receipt
Example- At the time of separation from a firm, Mohan undertakes not to carry on any
business similar to that of the firm for 5 years. In return for this promise, he gets ₹ 10,000.
This is a capital gain.
(8) Nature And Motive of Receipt —- The determination of whether a receipt is capital or
revenue also depends on the nature of the receipt and the purpose for which it is received. If
a property is purchased with the intention of earning a profit by selling it, then the amount
received from the sale of such acquired property will be called income because it is a
business activity, but when a property is not purchased with the intention or purpose of

6. selling it at a profit. But if it is sold later, then the amount received from the sale will be called
capital gain.
Frequently Asked Questions
Qs 1. Where is deferred revenue expenditure shown in balance sheet?
Ans. recorded as a liability
Qs 2. Is deferred revenue a current asset or liability?
Ans. liability
Qs 3. Is depreciation a deferred revenue expenditure?
Ans. Depreciation of fixed assets is considered as a revenue expenditure
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