Question

what is distinction between capital and revenue important? give example to show how wrong classification can affect the ascertainment of profit

Answer 1

The capital refers to all the cash,assets that is fixed assets and current assets etc.which a businessman invests in his business.Capital is the most important thing is a business.In balance sheet the capital is placed on the liability side whereas the revenue refers to all the incomes that the businessman recieved by selling his product.If the is a confusion in placing the capital and revenues in the proper ledger books.This can be really hazardous as the reputation of a business depends on the balancing of the balance sheet.There can be a case of fraud on the company.