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Distinction between Capital and Revenue Expenditure Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Distinction between Capital and Revenue Expenditure Video Lecture - Accountancy Class 11 - Commerce

1. What is the difference between capital expenditure and revenue expenditure?
Ans. Capital expenditure refers to expenses incurred for acquiring or improving long-term assets, such as property, plant, and equipment, which are expected to benefit the business for more than one accounting period. Revenue expenditure, on the other hand, refers to expenses incurred for the day-to-day operations and maintenance of a business, which are expected to provide benefits only for the current accounting period.
2. Can you provide examples of capital expenditure and revenue expenditure?
Ans. Examples of capital expenditure include the purchase of a building, machinery, or vehicles, as well as expenses incurred for major renovations or upgrades that extend the useful life of an asset. Examples of revenue expenditure include salaries and wages, utility bills, repair and maintenance costs, and advertising expenses.
3. How are capital expenditure and revenue expenditure treated in accounting?
Ans. Capital expenditure is recorded as an asset on the balance sheet and depreciated over its useful life. Revenue expenditure, on the other hand, is recorded as an expense on the income statement and reduces the net income for the current accounting period.
4. Why is it important to distinguish between capital expenditure and revenue expenditure?
Ans. Distinguishing between capital expenditure and revenue expenditure is crucial for accurate financial reporting and decision-making. Capital expenditure affects the long-term financial position of a business and is often subject to different accounting and tax treatment. Revenue expenditure, on the other hand, helps determine the profitability of a business in the short term.
5. How can a business determine whether an expense is a capital expenditure or revenue expenditure?
Ans. The determination of whether an expense is a capital expenditure or revenue expenditure depends on the nature and expected benefit of the expenditure. Factors such as the asset's useful life, the extent of improvement or enhancement, and the frequency of the expense can help determine its classification. Consulting with accounting professionals or referring to accounting standards can also provide guidance in making this determination.
82 videos|105 docs|42 tests

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Distinction between Capital and Revenue Expenditure Video Lecture | Accountancy Class 11 - Commerce

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