TYPES OF EXPENDITURE & RECEIPTS

TYPES OF EXPENDITURES

Capital Expenditure Money spent by a business on purchasing fixed assets and improving or extending existing fixed assets. Includes: all legal costs incurred in purchasing, costs of carriage, & costs of installing.

Revenue Expenditure Money spent on running a business on a day-to-day basis. Includes: adm. Expenses, selling expenses, financial exp., cost of maintaining & running fixed assets, cost of stock purchased for resale purpose.

TYPES OF RECEIPTS (INCOME)

Capital Receipt Occurs when a capital item such as fixed asset is sold. Should not be entered in the trading and profit and loss account but in balance sheet.

Revenue Receipt Sales or other income such as rent received, commission received, discount received, and so on. Arise from normal trading activities and are entered in the trading and profit and loss account.

Comparison Capital Expenditure/ Receipt Revenue Expenditure/ Receipt Will appear as fixed assets/ disposal of fixed assets in balance sheet Will appear as expense or sales/ other income in trading and profit & loss account

Differences Between Capital and Revenue Expenditure No Expenditure Capital Revenue 1 Buying van V 2 Petrol costs for van 3 Repairs to van 4 Putting extra headlights on van 5 Buying machinery 6 Electricity costs of using machinery 7 Spent $ 1,000 for an item (improvement) added to the machine, and $ 500 for repairs 8 Painting outside the new building 9 Three years later – repainting outside of building in (8)

Differences Between Capital and Revenue Expenditure No Expenditure Capital Revenue 1 Buying van V 2 Petrol costs for van 3 Repairs to van 4 Putting extra headlights on van 5 Buying machinery 6 Electricity costs of using machinery 7 Spent $ 1,000 for an item (improvement) added to the machine, and $ 500 for repairs 8 Painting outside the new building 9 Three years later – repainting outside of building in (8)