Capital And Revenue Expenditure And Receipts

Every dollar a business spends does one of two jobs. Some money buys things the business will use for years to come, such as a delivery van, a shop fitting or a new machine. Other money simply keeps the doors open today: wages, electricity, the daily restocking of goods. Telling these two kinds of spending apart, and doing the same for money coming in, is one of the most important judgements an accountant makes, because it decides where each figure lands: in the income statement that measures this year's profit, or in the statement of financial position that values what the business owns.

In this lesson you will learn to separate capital expenditure from revenue expenditure, and capital receipts from revenue receipts, with everyday examples that make the rule stick. You will then see the part examiners love most: what actually goes wrong when an item is put in the wrong place. A single misclassified repair can overstate profit and overstate assets at the same time, and you will learn to calculate the exact size of that error.