Question

Capital expenditure and revenue expenditure should be distinguished to determine net profit . TRUE OR FALSE

Answer 1

Answer:

The expenses a firm incurs each day to maintain its daily business activities are revenue expenditure. They're listed on the Income Statement to calculate the net profit of any accounting period. ... The major difference between the two is that the Capital expenditure is a one-time investment of money.30-Dec-2020

Answer 2

ANSWER :

• The given statement is TRUE.

❒ Capital expenditure and revenue expenditure should be distinguished to determine net profit. It is because, when capital expenditure are also treated as revenue expenditure; then due to overstatement of revenue expenditure, net profit will be understated.

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MORE TO KNOW :

❖ Capital Expenditure :-

• ★ Capital Expenditure is the expenditure which results in acquisition of an essay on which help to increase the earning capacity of a business the benefit from a capital expenditure is developed over a longer period of time.

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❖ Features of Capital Expenditure :-

• ➯ Capital expenditure is incurred for acquiring fixed asset.

• ➯ Capital Expenditure increases the value of fixed asset.

• ➯ Capital Expenditure increases the profit earning capacity of the business.

• ➯ Capital Expenditure are non recurring in nature

• ➯ Capital Expenditure is shown on the Asset side of the Balance Sheet.

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❖ Revenue Expenditure :-

• ★ Revenue Expenditure is the expenditure incurred to meet that day to day expenses of the concern. It is incurred in the normal course of business and the benefit of revenue expenditure is derived in the year of incurring the expenditure.

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❖ Features of Revenue Expenditure :-

• ➯ Revenue Expenditure incurred to meet the day-to-day expenditure of a business concern.

• ➯ Revenue Expenditure are of routine and non-recurring in nature.

• ➯ Revenue Expenditure doesnot increases the profit earning capacity of the firm.

• ➯ Current assets acquired through Revenue Expenditures are meant for sale.

• ➯ Revenue Expenditure as shown at the Debit side of the Trading and Profit and Loss Account.