sCapital and Revenue Expenditure

What is capital expenditure?

The expenditure which results in the acquisition of non current assets or an improvement in their earning capacity.

Increases the value of assets in the statement of financial position. Recorded as an asset in the balance sheet and depreciate overtime.

Examples:

Purchase of machinery,construction of new building,buying land,upgrading IT systems,renovating office space.

What is revenue expenditure?

The expenditure which is incurred for the purpose of the trade of the bussiness or to maintain the existing earning capacity of non current assets.

It is recorded as expense in the income statement for the current year.

Examples:

Salaries and wages,rent,utility bills,raw materials,repairs anf maintenance,advertising expenses.

What are the differences btw CapEx and RevEx?

• CapEx: long term investment ( future benefits,asset creation).

• RevEx: short term cost(immediate benefit,no asset creation).

Think of it like this:

• CapEx:Buying a delivery truck(asset for years).

• RevEx: Fueling and servicing that truck(reccuring cost).

In what events/situation do we classify stationery as expense?

• It is consumed quickly in daily operations.

• The cost is relatively small and doesnt provide long term value.

In what events/situation do we classify stationery as asset?

• You buy it in bulk and still have unused stock at the end of accounting period.

• It hasnt been yet consumed,so it represents future economic benefit.

Whats the difference btw goods and inventory?

Goods: items a business buys or produces with intention to sell. Classified as inventory until sold,then move into cost of sales.

Inventory: includes all goods held for sale plus raw materials and work in progress. Represents stock a business owns at a given time,whether finished or not. Recorded at year end.

Examples:

Flour and sugar,bread om shelf

What is the key difference btw goods and inventory?

Goods: finished products ready for customers.

Inventory: everything in stock.