Chapter 01.4 - Capital & Revenue expenditure

Question 1

What is capital expenditure?

Answer 1

Capital expenditure is money spent that has a long term benefit to the business. In practice, this usually means money spent on non-current assets.  
Ex - Premises
Motor vehicles
Plant & Machinery
Fixtures and fittings

Any money spent on acquiring, altering or improving an NCA is also classified as capital expenditure.
Ex - An extension to property
sign writing on a van
Legal expenses when purchasing a property.

Question 2

What is revenue expenditure?

Answer 2

Revenue expenditure is money spent that has a short term benefit to the business. ( less than one year ) 
Ex. Running costs of the business
Purchase of raw materials 
staff wages
Rent & Rates
Light & heat
Stationary 
Advertising
Maintenance or repair of NCA's

One feature of revenue expenditure is that it is recurring and is not a one- off payment.

Question 3

Where does capital expenditure appear on the financial statements of a business ?

Answer 3

It appears on the SOFP, listing all assets and liabilities of a business.

Question 4

Where is revenue expenditure recorded o the financial statements ?

Answer 4

It is recorded in the Income statement where expenses will be deducted from revenue to calculate profit or loss of the business.

Question 5

What are revenue receipts?

Answer 5

These are arising from normal day to day business activity. Ex - Income generated from sales , Rent receivable

Question 6

What are capital reciepts?

Answer 6

Receipts which do not arise from normal day to day business activity. Ex - Capital contributions from the owner, Long term loans, proceeds from the sale os NCA’s