Capital and Revenue Expenditure

Question 1

What are the difference between Capital and revenue expenditure?

Answer 1

Capital Expenditure is when you buy or improve a asset while revenue expenditure is when you pay for operational running expenses.

Capital expenditure benefits the compony long term (over a year) while revenue expenditure benefits the company short term (under a year)

Capital Expenditure is recorded as non-current asset in the statement of financial position while revenue expenditure is recorded as a expense in the income statement

Question 2

What is the result of incorrect treatment of capital expenditure as revenue expenditure?

Answer 2

Profit for the year is understated
Non-Current assets in the statement of financial position will be understated

Question 3

What is the result of incorrect treatment of revenue expenditure as capital expenditure?

Answer 3

Profit for the year is overstated
Non-Current assets in the statement of financial position will be overstated

Question 4

What are the two types of income?

Answer 4

Capital and Revenue income

Question 5

What is Capital Income?

Answer 5

It is when money is received from the sales of non-current assets

Question 6

What is Revenue Income?

Answer 6

It is when money is received from the sale of goods and services by a business it also includes income from secondary sources such as rent interest and commission receivable.