Question

Distinguish between capital expenditure and revenue expenditure.

Answer 1

Basis	Capital expenditure	Revenue expenditure
1. Nature	It is non-recurring in nature	It is recurring in nature.
2. Purpose	To contribute to the revenue earning capacity of the business.	To carry on the day to day activities of the business.
3. Period of benefits	Its benefit is available for a longer period.	Its benefit is obtained within one accounting period.
4. Effect on profit-earning capacity	It increases the profit-earning capacity of the business.	It maintains the profit-earning capacity of the business.
5. Accounting treatment	It will appear on the assets side of the balance sheet.	It will be shown on the debit side of the trading and profit and loss account depending on whether direct or indirect in nature.