What is Capital Expenditure and Revenue Expenditure?

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What is Capital Expenditure and Revenue Expenditure What are Expenses It is the cost of purchasing a good or a service Example Freight, Electricity Expense,Stationary Which of the following is expenses? Company spent Company spent Rs 3000 Rs 3000 on on Internet Furniture This is an expense This is not an expense as Internet It is a Fixed asset Exp is shown (Shown in Balance in P&L sheet) Expenses It is the cost of purchasing a good or a service It is shown in Profit and loss (not balance sheet) What is Expenditure? It is the amount spent or liability incurred for Purchasing goods,service or assets Example Expenditure on Salary,Stationary or Purchase of Asset like Machinery Which of the following is expenditure Company spent Company spent Rs 3000 Rs 3000 on on Internet Furniture Both of these are Expenditure Expenditure It is the amount spent or liability incurred for Purchasing goods, service or assets It may be shown in Profit and loss as expense or in Balance sheet as Asset Difference between Expense and Expenditure Expenses Expenditure It includes those costs It includes those costs which are shown which are shown in in Profit Profit and loss or as Asset and loss in Balance sheet Example Example Electricity is an Electricity as well expense but as Purchase Purchase of Car is not of Car are an expense both (Car is an asset) expenditure Difference between Revenue expenditure and Capital expenditure Capital Revenue Expenditure Expenditure Expenditure on Expenditure on Purchase of item whose Fixed Asset benefit or exhausted Improvement of in Fixed Asset current year Example Example Purchase of Car Salary Cost of CNG Advertising Expense Fitted in Car Stationary It is shown in It is shown in in Balance sheet in Profit & loss as asset as expense Different Types of Expenditure Capital Expenditure It includes expenditure on Purchasing the asset or expenditure on improving existing assets Example-Expenditure on Car is Capital Expenditure as it is an asset Expenditure on getting CNG Fitted in car to imrove Car's efficiency is also Capital expenditure Note-Capital expenditure is said to be of enduring nature (long term expense) and they improve the earning capacity of business Revenue Expenditure It includes expenditure on those items whose benefit is completely exhausted in current year In easy language,it means expenditure on various day to day expenses like salary,freight,Purchases,advertising All these are shown in Profit and loss as expenses Deferred Revenue Expenditure Sometimes nature of revenue expenditure is such that whole benefit will not be exhausted in one year in this case, some expenditure is shown in Balance sheet as Assets These are called Deferred Revenue Expenditure Example Company spent Rs 50 lacs on Advertising and Brand Promotion Expense Benefit for this will continue for suppose 5 years in this case,Rs 10 lacs (1/5 of 50) will be shown as expense in Profit & loss A/c Remaining 40 lacs will be shown in Balance sheet as Assets Type of Expenditure Related to fixed Not Related to Asset Fixed Asset Capital Expenditure Benefit Benefit not Exhausted Exhausted in 1 Year in 1 Year Revenue Deferred Expenditure Revenue Expenditure