Revenue Expenditure :
The expenditure which is incurred for the day to day running of the busi- ness like expenses incurred for producing finished goods such as direct expenses, purchase or raw material and other expenses as rent, salary, repair etc.
Nature of Revenue Expenditure :
1. When an amount incurred on maintaining the earning capacity of the business (keep the assets in efficient working condition) e.g. repair of machinery.
2. The benefit of expenses would last in one year. (give benefit maxi- mum of one year)
3. Revenue expenditure are recurring in nature and recorded in income statement (trading and profit and loss account)
Examples of Revenue Expenditure :
1. Renewal expenses/fee of patent.
2. Depreciation on fixed assets.
3. Repair of machinery normal or due to negligence of operator.
4. Insurance premium for an assets including tax on insurance.
5. Electricity bill paid, salary paid, wages paid, trading expenses, establish- ment changes, bad debt etc.Deferred Revenue Expenditure :
The expenditure which is revenue in nature, but the amount is heavy and benefit of the likely to be derived over a number of years called deferred revenue expenditure. e.g. large expenses on advertising of a new product and hence it is treated same just like a fixed assets. Sometimes heavy losses due to natural calamities can also be treated as deferred revenue expenses.
Accounting treatment of Deferred Revenue Expenditure : As per match- ing principle, expenses incurred in an accounting period are matched with the revenue recognized in that accounting period. So the whole deferred revenue expenditure should be spread over the number of year over which benefit is likely to occur.
During the current accounting year (a). Only that portion of the expenditure should be charge to the profit and loss account which has facilitated the enterprise to earn revenue during current year.
(b) Remaining amount of expenditure be carried forward to the next year and shown in the assets side of balance sheet (actually it is a fictitious assets).
Examples of deferred revenue expenditure :
1. Heavy amount spent on advertisement on launching a new product.
2. Heavy repair expenditure incurred on machinery (which has not increased earning capacity of machinery) may be treated as deferred revenue expenditure and spread over a number of years.
Capital Receipt
Capital receipts don’t affect profit or loss of business; it either increase the liabilities or reduces the fixed assets (by sale of fixed assets). So it will be shown in balance sheet.
Capital receipt includes following receipts :
I. Fresh capital introduced or additional capital introduced
II. Loan raised.
III. Amount received which is not is the normal and ordinary course of business like sale of fixed assets.
Capital receipts are not made available for distribution of profit to the owner.
Revenue Receipt
Revenue receipts are the which received in the normal and regular course of business like
(i) Receipts from sale of goods and fendering services to customers.
(ii) Income from non-operating business activities (like income from investment i.e. interest and dividend received and rent received).
(iii) Commission and other fees received for non-operating business ser- vice rendered.Accounting Treatment : These receipts increases profit and shown in the credit side of the Trading and Profit and Loss account.
CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari )
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