Expenditure

EXPENDITURE

 

Any type of payment for the receipt of a benefit is termed as Expenditure. It may be in cash or transfer of property or incurring a liability for the purpose of acquiring assets, goods or services.

Expenditure may be classified into 3 categories:

1.     Capital Expenditure

2.     Revenue Expenditure

3.     Deferred Revenue Expenditure

Capital Expenditure: Any expenditure which is incurred in acquiring or increasing the value of a fixed asset is termed as Capital Expenditure. Such expenditure yields benefit over a long period and written in Assets. Examples: amount spent on the purchase or erection of Building, Plant, and Furniture etc.

Main Features:

·        It is incurred for the acquisition or erection of a fixed asset.

·        It is incurred for the purpose of increasing the earning capacity of the business.

·        It yields benefit normally over a long period.

·        It is written in the Balance Sheet.

 

Revenue Expenditure: Any expenditure, the full benefit of which is received during one accounting period is termed as Revenue Expenditure. It does not result in an increase in the earning capacity of the business. It only helps in maintaining the existing earning capacity. It also does not bring into existence an asset of an enduring nature.

Main Features:

·        It is incurred for the day to day running of the business.

·        It is incurred for the maintenance of earning capacity i.e. for keeping the assets in an efficient working order.

·        It yields benefit for a maximum period of one year.

·        It is written in Trading or Profit &Loss A/c.

 

Deferred Revenue Expenditure: There are certain expenditures which are revenue in nature but the benefit of which is likely to be derived over a number of years. Such expenditures are termed as Deferred Revenue Expenditure.

Main Features:

·        It is revenue in nature.

·        Its benefit lasts between 3 to 7 years.

·        The whole of such expenditure is not debited to Profit and Loss A/c of the current year but spread over the years for which the benefit is likely to last.

·        Only a part of such expenditure is taken to Profit & Loss A/c every year and the unwritten off portion is allowed to stand on the Asset side of the Balance Sheet.