Explain the Difference between Capital and Revenue Expenditure and Income

1550 Words Apr 19th, 2015 7 Pages
P2: Explain the Difference between Capital and Revenue Expenditure and Income

What is Revenue and Expenditure?
In accounting, one must keep record of all revenue and expenditure made by the business. Revenue is essentially the income of the company itself over a certain amount of time. This may be obtained through sales or providing services to customers. Expenditure is the payment of cash or goods made by the company to purchase stock and assets or to pay off debts.
What Is the Difference between Capital Income and Revenue Income?
There are two types of income; capital income and revenue income. Capital income is the money invested by owners to set up the business and to buy fixed assets such as property and machinery, fixed assets are
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Some business receive rent by charging people to rent out their property so they can collect payments on it. Other companies sell goods on behalf of another company and collect a percentage of each sale, this is called receiving commission.
What is the Difference between Capital Expenditure and Revenue Expenditure?
Expenditure is the amount of money coming out of a business. It can be categorised as capital expenditure or revenue expenditure. Capital expenditure is when fixed assets are bought into the company, these are called capital items. Revenue expenditure is money being spend on items used on a regular basis such as buying stock to sell or paying staff payslips.
Capital Expenditure
Capital items bought by capital expenditure are fixed assets and intangible assets. Fixed assets are long-term items such as building and machinery. These items lose value over time and are therefore depreciated. To depreciate something means to reduce its value on the balance sheet so that it has a fair and accurate value. Intangibles are assets that cannot be touched but are still beneficial to the business. If a company were to be bought over, its good reputation and customer base would be bought with it. This is known as goodwill and automatically adds to the value and selling price of the business. Patents are legally protected inventions within the company. For example a company could invent a piece of software, if the
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