...Revenue and capital expenditure are aspects of business management that seem very similar at first. Both revenue and capital expenditure are purely focused on the process of spending money to help a business survive and grow. The key difference between the two is the intention of the expenses and the direction of the money flow. Revenue is for short-term costs that are not used afterwards to make the company grow, such as repairs which are most common. Capital expenditure is for assets that are considered or categorized long-term, such as new vehicles or software, which will be used to make the company stronger. Revenue expenditure is money being spent immediately and exclusively for short-term purposes. These are expenses associated with profit-producing assets, such as repair, that may or may not increase the life of the given asset. Revenue expenditure is more often associated with day-to-day costs the company accrues through its life cycle. Capital expenditure is money is being spent on assets that will increase the company’s ability to pull in profit or operate at a higher performance level. New software technology, vehicles, machinery and tools that will be used for at least 12 months are considered capital expenditure. Capital expenditure, unlike revenue, is looked at more as an investment than a cost, because it is being used to strengthen the company so it can do better business. When purchasing a capital asset, a business either will spread the cost out over the asset’s...
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...daily incur revenue expenditures to upkeep their operating efficiency and productive life of an asset. Expenditures are unavoidable as well as they are very necessary to expand the business. Expenditures are payments of cash or cash equivalent for goods or services. The difference between revenue and capital expenditures is that revenue expenditures are expenses that are immediately charged against revenue as expenses. Regular and periodic repairs are revenue expenditures because they are charged directly to specific accounts. Examples of these accounts would be Repairs and Maintenance Expense. Capital expenditures are expenditures will increase the company’s investment primarily in productive facility. A capital expenditure is an amount spent to attain or improve a long term asset such as buildings or equipment. When recording capital expenditure, it is usually recorded in accounts classified or titled as Property, Plant and Equipment. Generally, because capital expenditures provide income for the company over a period of years, companies are not allowed to deduct the full cost of the asset in the year the expense is incurred. Revenue expenses typically are shorter term expenses because they always required to meet the ongoing operational costs of running a business. (Investopedia, 2015) The contrasting factor of capital and revenue expenditures is that revenue expenditures can be fully tax deducted in the same year the expense occurred. Revenue expenditures can be considered...
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...Reflection Expenditures are unavoidable for any company to exist in the competitive market, to expand the business or to find new opportunities to open up beneficial business in those areas, etc. Expenditure is defined as payments of cash or cash equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by a source document like invoice, voucher, receipt, etc. All payments made by a company can be broadly categorized into capital expenditure and revenue expenditure. Capitol expenditure is an amount spent to acquire or enhance a productive asset to increase the capacity or efficiency of a company for more than an accounting period is defined as capital expenditure. That is, simply, capital expenditure is the expenditure made with the intension of getting the benefit from that expenditure for more than one year (usually accounting period is one year). For example, amount spent on long-term assets like machinery, plants, buildings, etc, either to improve or to acquire, is capital expenditure. Normally capital expenditure is capitalized in the books of accounts and then that amount will be depreciated over the useful life of the assets. It is also known as capital spending. It is essential to understand the differences between capital expenditure and revenue expenditure as the accounting treatments are different. Revenue expenditure is cash or resources spent on sales revenue generation or for maintaining...
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...explain the difference between capital and revenue items of expenditure and income Capital income Capital income is money coming into the business, but not necessarily from direct sales of products or services. Capital income is money that comes into the business but not as revenue from what the businesses main frame of making profit is. Zara’s capital income would be any loans that the business receives. Another form of capital income Zara receives is money that comes into the business from sales of shares. Sole trader’s capital investments is also another form of capital income. Revenue income Revenue income is money coming into the business from sales of goods or services. This is the form of revenue that the businesses main purpose for setting up is to make profit in this form of revenue income. Revenue income could also be from receiving payments loans given out with interest in return or money coming in from rent payments that come into the business. Zara’s main form of revenue income is from the sales of their clothing goods both online and in store. Difference between capital and revenue income The difference between capital and revenue income is that capital income is made from money that comes into the business but not from the direct method that the businesses main purpose of making profit is. For example a business’s main objective may be to make as many sales from a product as possible, the money that they receive from this is revenue income because it is money...
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...by the classifying expenditure into capital expenditure and revenue expenditure. In this discussion we going to investigate characteristics of each type of expenditure and consider the practical problems involved in making such a difference. For the purpose of that essay, I am going to use examples from Angus Shop accounting statements that have been prepared by group 6, as part of group coursework assignment. Before starting discussion, it is essential to define major terms. According to (Wood and Sangster, 2015) “Capital expenditure used when a business spends money to buy or add value to a non-current asset”. According to the same authors “Revenue expenditure are expenditure which is not spent on increasing the value of non-current assets, but is incurred in running the business on a day-to-day basis”. Therefore, the main difference between those two expenses is their functions. The...
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...Capital Expenditures & Revenue Expenditures Veronica rowe XACC/291 Jan 29, 2014 Shontell Chrisman Capital Expenditures & Revenue Expenditures Capital expenditures; a sum spent to procure or development of a long term asset, such as buildings or equipment. Under normal accounting methods the cost is put under equipment, plant, property. Everything except the cost of land can be charged as depreciation expenditure over the useful life of the asset. Capital expenditures are put on financial report as an asset on balance sheet. Capital expenditure rewards are spread over several accounting periods. Capital expenditures can include replacement cost to delivery cost, legal charges and everything in between. Revenue expenditures; are amounts distributed out instantaneously, they match entries of the existing accounting period. Scheduled maintenance is a revenue expense, because they are charged without waiting to an account like maintenance and repairs expenditures. Major repairs do not affect the life of the asset. Revenue expenditures are put on financial report on the income statement. Revenue expenditures may include maintenance charge, repair, and renewal and everything in between. Both are classified as assets. The difference between the source of Capital and Revenue expenditures is special, because Capital is comprised of cost related to fixed assets, and Revenue expenditures affect is temporary, they come often and contains no physical presence, and does not...
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...loom hours from two members for a consideration of Rs 20 lakhs for a period of 6 months. The assessee claimed deduction of Rs. 20 lakhs as business expenditure, under section 37(1) of Income Tax Act. Is the claim justified? II. ANALYSIS OF FACTS: Each member of the association was manufacturing less than what it could have, if it was working full time. The members agreed to such an agreement as otherwise there would have been over-production of silk. The loom hours could be traded for, if you had an excess of them. Loom hours are the number of hours that you work your looms (mills) for. Section 37 speaks about ‘General Deductions’: Any expenditure not specifically covered by sections 30 to 36 is deductible under section 37, if the following conditions are satisfied: a) It should be in respect of business carried on by the assessee b) It should have been laid out or expended wholly or exclusively for the purpose of business c) It must have been incurred in the previous year d) It should not be in the nature of capital expenditure or personal expenditure of the assessee III. Legal Issues: 1. Whether ‘Loom Hours’ is a capital asset? 2. If an asset sold is capital receipt in seller’s hands, does it mean it’s automatically capital expenditure in the purchasers’ hands? 3. If the expenditure is made with respect to acquire ‘enduring...
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...differences in revenue expenditures and capital expenditures it is important to know what they are and how a company records and reports them. According to Weygandt, Kimmel & Kieso, (2010) during the useful life of a plant asset, a company may incur costs for ordinary repairs, additions, or improvements. Ordinary repairs are expenditures to maintain the operating efficiency and productive life of the unit. Companies record such repairs as debits to Repair (or Maintenance) Expense as they are incurred. Because they are immediately charged as an expense against revenues, these costs are often referred to as revenue expenditures. According to Weygandt, Kimmel & Kieso, (2010) additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset. They are usually material in amount in occur infrequently. Companies generally debit these amounts to the plant asset affected. They are often referred to as capital investments. Most major U.S. corporations disclose annual capital expenditures. Similarities There is only one similarity between revenue expenditures and capital expenditures. They are similar because they both have an effect on operating efficiency. Differences There are more differences between revenue expenditures and capital expenditures than similarities. Revenue expenditures are smaller and more frequent while capital expenditures are larger and infrequent. Revenue expenditures “maintain” the...
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...notes to the financial statements. The financial statement does contain two government wide financial statements which are the statement of net position (p15) and the statement of activities (p16) and seven fund financial statements. The management discussion and analysis section contains the overview of financial activities of the city of Topeka. C) What information is provided in the statistical section? The statistical section mainly provides information about the financial trends, debt capacity, revenue capacity and the economic information. Question - two basis of accounting The basis of accounting is used in the general fund is the general fund is the modified accrual basis. This information can be found on p 18 and p 29 of the CAFR. Because of the City of Topeka does have the long term liabilities and capital assets, this would cause the difference between the governmental funds and the governmental wide statement. By viewing the statement of revenues, expenditures, and changes in fund balances of governmental fund (page 19). We suppose...
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...Revenue Expenditures & Capital Expenditures Tracey DeSautel November 1, 2014 University of Phoenix XACC/291 In the world of accounting, there are numerous types of expenses that come along with running a business on a day to day basis as well as overall. There are things that break down and add value to the companies assets as well as things that are expensed to run the business on a daily basis. These can break down to two important items and those are Revenue expenditures and Capital Expenditures. Revenue expenditures is the amount that is expensed immediately. Thereby being matched with revenues of the current accounting period. Examples include things such as routine repairs because they are charged to a direct account such as “ repairs and maintenances expenses> these do not extend the life or improve the assets for the company. Capital expenditures are amounts spent to acquire or improve a long term asset. These can be things such as buildings or even equipment. These are usually recorded in accounts classified as “ property, plants and equipment”. These are charged to depreciation expense over the assets lifespan. It breaks down to capital expenditures are for items such as machinery and buildings where as revenue expenditures are for things that create revenue such as advertising and labor. A further look into capital expenditures and examples are that, that do not occur in daily transactions for the company and include such purchases that may include the...
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...Task 2 – Criteria covered for P2 Capital Income - Capital income is an increase in value of capital assets employed in a business that would make it more expensive than the original price itself. For example, a woman bought a diamond that cost $3000, the next year, she decided to sell it for $4000 to a friend, the $1000 difference is called the capital income. There is also capital loss in a business, it occurs when there is a decrease of value in the capital assets, where the selling price will be lower than the original price itself. For example, a man bought a $200 phone, the next year, he decided to sell it for $100. The $100 difference is called the capital loss. The capital income could be a short term or long term. A short term capital income is an asset held in a business for exactly a year or less while a long term capital income is held for more than a year and they all must be claimed on income taxes. For example, I bought a limited edition car for $10000. After 5 years, average selling price of this car increases to $15000 in the market due to increasing demand. So I decided to sell it after 5 years. I am not required to pay any taxes charged on the increase of value, but I only have to pay a tax on the long term capital income. Revenue income – Revenue income also known as REVs is the amount of money a company receives over a period of time, you can know the revenue income by knowing the selling price and quantity sold. For example, I sold 10 handbags...
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...between capital and revenue items of expenditure and income. Income is the consumption and savings opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. However, for households and individuals, income is the sum of all the wages, salaries, profits, interests’ payments, rents and other forms of earnings received in a given period of time. Expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often referred to as an expense. An expense is a cost that is "paid" or "remitted", usually in exchange for something of value. Capital expenditure: Capital expenditure is expenditures altering the future of the business. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset or to maintain a fixed asset. These can include land, building and equipment. Capital income: An increase in the value of a capital asset that gives it a higher worth the purchase price. The gain is realized until the asset is sold. For example, if a farmer buys land for a certain amount of money and sells it at a profit after one year, the difference in the prices is capital income. In contrast, if an asset is sold at a lower price than it was bought for, the result is a capital loss...
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...ordinary repairs and then we have additions and improvements. Costs incurred for ordinary repairs are considered as revenue expenditures. Ordinary repairs are expenditures that are used to maintain the operating efficiency and productive life of the unit costs acquired for additions and improvements are considered capital expenditures. Companies require revenue expenditures to maintain the operating efficiency and productive life of an asset. Usually these small costs occur frequently. Examples of revenue expenditures are, oil changes and tune-ups, maintenance charges, repairs costs, renewal expenses, and repainting costs. Companies record the entry of revenue expenditures as a debit to Repair or Maintenance Expense as they are obtained, and a credit to cash or accounts payable (Stormo, 2009). Companies acquire capital expenditures to increase the operating efficiency, productive capacity, or useful life of an asset. Usually these rather big costs occur infrequently. Capital expenditure is money is being spent on assets that will increase the company’s ability to pull in profit or operate at a higher work level (Accounting-Simplified, 2013). Examples of capital expenditures are Purchase costs, delivery costs, legal charges, installation costs, replacement costs, construction costs, and demolition cost. Companies generally record the entry of a capital expenditure as a debit to the Plant Asset affected, and a credit to cash or accounts payable (Stormo, 2009). Land Improvements...
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...receiving payment. Another reason why accounting is important for Sainsbury’s because it provides managers important information for decision making. Also it is important for accounting in Sainsbury’s because Sainsbury’s need to provide up to date information to the stakeholders about financial information. P2: Difference between Revenue Income, Revenue Expenditure, Capital Income and Capital Expenditure. Capital income: Capital income is when money is invested by other investors or by the owner to buy equipment and start up a business. The equipment brought will stay in a business long and medium periods of time for example equipment, premises and vehicles and they are called fixed assets. When you buy opining stock the money will come out of the capital income and after a month or so your stock will be paid by revenue income. Capital expenditure: Capital expenditure is the amount of money spent to upgrade or acquire assets for example vehicles, building, equipment and machinery. So by acquiring these assets you can increase the company’s efficiency or capacity for more than one accounting period. Revenue income: Revenue income is when the money comes into a business from day to...
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...Comparing Capital Expenditure for NBG and INVESCO Name: Course: Number: As defined by Hitchner, & Mard, (2003), capital expenditure is a cost that is incurred today for future benefits realization. Today’s capital expenditures create a difference in the company’s future status depending on the company’s strategies and resolutions. Capital expenditures are extensive and in most case, they will hold most of the company’s money. At one point in time, companies will invest in plant machinery, buildings, prime property, or any other form of fixed assets. Despite having the stage at which any company will have to incur capital expenditure, these capital expenses will vary depending on the industry the company is operating in, its operations, and the size of the company. Despite being closely related to the capital assets, capital expenses also relate to the maintenance cost of the already acquired assets (Hitchner, & Mard, 2003). The paper will analyze the capital expenditures of INVESCO and National Bank of Greece (NBG) companies by providing the differences and similarities of their capital expenditures. The analysis of the capital expenditure for the two companies will be between 2011 and 2013 financial years. The National Bank of Greece (NBG) The NBG is a global financial organization with well-established branches in various countries including the United States of America. NBG offers financial products and services to their clients ranging from those of individuals...
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