In this article we will discuss the concepts of Capital Receipts | Revenue Receipts | Capital Expenditure | Revenue Expenditure, Deferred revenue expenditure in Accounting.
Certainly, let’s delve deeper into each concept:
Capital Receipts
Capital Receipts:
- These are funds received by an organization that do not result from its regular business activities.
- Capital receipts either create a liability or reduce a financial asset.
- Examples of capital receipts include:
- Sale proceeds from the sale of fixed assets (land, buildings, machinery, etc.).
- Long-term loans taken by the company.
- Capital contributions from shareholders or owners.
- Capital receipts are not recurring and are typically associated with activities that affect the long-term financial structure of the organization.
Revenue Receipts
Revenue Receipts:
- These are funds received by an organization as a result of its regular business operations.
- Revenue receipts are recurring in nature and are earned through the sale of goods, provision of services, or other operational activities.
- Examples of revenue receipts include:
- Sales revenue from the sale of products or services.
- Service revenue from providing services to customers.
- Interest earned on investments or bank deposits.
- Revenue receipts contribute to the day-to-day functioning of the business and are crucial for meeting operational expenses.
Capital Expenditure
Capital Expenditure:
- This refers to the expenditure incurred for acquiring or improving long-term assets that will provide benefits over multiple accounting periods.
- Capital expenditure is aimed at enhancing the productive capacity or efficiency of the business.
- Examples of capital expenditure include:
- Purchase of land, buildings, machinery, equipment, or vehicles.
- Investment in software or technology infrastructure.
- Expenditure on research and development activities.
- Capital expenditure is recorded as an asset on the balance sheet and is typically depreciated or amortized over its useful life.
Revenue Expenditure
Revenue Expenditure:
- This refers to the expenditure incurred for the day-to-day operational activities of the business.
- Revenue expenditure is aimed at maintaining the existing level of operations and generating revenue in the current accounting period.
- Examples of revenue expenditure include:
- Salaries and wages paid to employees.
- Rent, utilities, and maintenance expenses.
- Advertising and marketing expenses.
- Revenue expenditure is recorded as expenses on the income statement and is fully charged against revenue in the period it is incurred.
Deferred Revenue Expenditure
Deferred Revenue Expenditure:
- Deferred Revenue Expenditure – This term refers to revenue expenditure that provides benefits over multiple accounting periods but is charged to the income statement in the period it is incurred.
- Deferred revenue expenditure is typically of revenue nature but its benefits are not fully consumed within the current accounting period.
- Examples of deferred revenue expenditure include:
- Heavy expenditure on advertising campaigns that benefit the business over several years.
- Preliminary expenses incurred during the setup of a company.
- Deferred revenue expenditure is treated as an asset on the balance sheet and is gradually amortized over its expected useful life, matching the expenditure with the periods during which it provides benefits to the business.
Understanding the distinctions between these types of receipts and expenditures is essential for proper financial management, budgeting, and decision-making within an organization.
Capital Expenditure Vs. Revenue Expenditure
Capital Expenditure | Revenue Expenditure | ||
i. | Incurred either for acquiring new fixed asset or for improving the existing ones. | i | Incurred either for maintaining the existing fixed assets or for meeting the routine expenses of the business |
ii. | Increases the earning capacity of the business | ii | Does not do so, simply helps in maintaining the existing earning capacity of the business. |
iii | Benefit is available over a period of time | iii | Benefit is restricted only to the Accounting period in which it has been incurred. |
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