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C H A P T E R

Capital and Revenue

Expenditure/Income

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Capital Expenditure Capital Expenditure is that expenditure which gives benefit of enduring
nature, i.e., the benefit of which extends to a period or periods beyond
the accounting period.
2. Revenue Expenditure Revenue Expenditure is that expenditure the benefit of which is
consumed or exhausted within the accounting period.
3. Deferred Revenue Deferred Revenue Expenditure is expense or loss incurred which is
Expenditure written off in more than one accounting period. They are categorised as
Fictitious Assets.
4. Capital Receipts Capital Receipts are those receipts which are not received in the normal
course of business, such as capital introduced, loan received, premium
received on issue of shares, etc.
5. Revenue Receipts Revenue Receipts are those receipts which are received in the normal
course of business, such as revenue from sale of goods and services.
6. Capital Profit Capital Profit is a profit which is not earned by the business in the normal
course of business. For example, gain on the sale of fixed asset or gain on
reissue of forfeited shares.
7. Revenue Profit Revenue Profit is the profit earned by the business in the normal course
of business, e.g., profit on sale of goods, discount received, commission
earned, etc.
8. Capital Loss Capital Loss is the loss which occurs on selling fixed assets or raising capital
(discount on issue of debentures).
9. Revenue Loss Revenue Loss is the loss which arises during the normal course of business,
i.e., in trading operations such as loss on sale of goods.

CHAPTER SUMMARY

• Capital Expenditure is the amount spent by an enterprise on purchase of fixed assets that are used in
the business to earn income and not intended for resale. The benefit of capital expenditure is not fully
consumed, i.e., exhausted in one accounting period but spreads over accounting periods.
• Treatment of Capital Expenditure Captial expenditure is debited to the Fixed Asset Account and is shown
in the Balance Sheet.