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The importance of distinguishing between capital and revenue items in accounting. It describes the various capital and revenue items, including capital expenditure and revenue expenditure, and their accounting treatment. The document emphasizes the need for correct classification of items to ensure accurate preparation of trading and profit and loss account and balance sheet. It also explains the difference between capital and revenue expenditure and their benefits. useful for accounting students and professionals who want to understand the basics of capital and revenue items in accounting.
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Isimportanttomakeacleardistinction betweenitemsofcapitalnatureandrevenue natureforthepreparationoftradingandprofit andlossaccountandthebalancesheet,Ifany item iswronglyclassified,Aeifanyitem of revenuenatureistreatedascapitalitem orvice- versa,theascertainmentofprofitorlosswillbe incorrect. Thevariouscapitalandrevenueitemsareasfollows CapitalExpenditure Itismoneyspentonthepurchaseofpermanent orfixedassetforuseinthebusinessandnot forimmediateresaleoronthepermanent improvementoforadditiontoorextensionof anexistingassetwithaviewtoincrease
theearningcapacityofthebusinessenterprise. ¢.g.Purchaseofplantandmachineryetc. Capitalexpenditureasopposedtorevenue expenditure,isgenerallyofaone-offkindand itsbenefitisderivedoverseveralaccounting periods.Capitalexpendituremayinclude purchasecost,deliverycosts,legalcharges, installationcosts,upgradationcostsand replacementcosts. Ascapitalexpenditureresultsinincreaseinthe fixedassetoftheentity,theaccountingentryis asfollows DebitFixedAssetsCreditToCash/Payable