Q.Explain the meaning of Capital Expenditure, Revenue Expenditure, and Deferred Revenue Expenditure, with one example each.

Not every amount a business spends is treated the same way in the books — the distinction depends on how long the benefit of that spending lasts.

Capital Expenditure is spending to acquire a fixed asset or a long-term benefit, whose benefit extends over several years (e.g. buying machinery). Revenue Expenditure is spending for the day-to-day conduct of the business, whose benefit is exhausted within the same accounting year (e.g. paying rent). Deferred Revenue Expenditure is a large revenue expenditure whose benefit is expected to last a few years, and so is written off gradually rather than all at o …

Expenditure is classified according to how long the benefit derived from it is expected to last:

1. Capital Expenditure — expenditure incurred to acquire a fixed asset, or to bring a long-term benefit or advantage to the business. Its benefit is not exhausted in the year it is incurred, but extends over several accounting years. Example: purchase of machinery, or purchase of a delivery van. Capital expenditure is shown as an asset in the Balance Sheet, and only the portion relating to the current year (depreciation) is charged to the Profit and Loss Account.

2. Revenue Expenditure — expenditure incurred for the day-to-day running of the business, whose benefit is fully consumed within the same accounting year in which it is incurred. Example: payment of rent, salaries, or the cost of goods purchased for resale. Revenue expenditure is charged in full to the Trading and Profit and Loss Account of the year in which it is incurred. …

A common mistake is judging the type of expenditure purely by its AMOUNT (assuming a large payment must be capital expenditure). The correct test is the DURATION OF THE BENEFIT, not the size of the amount — a large repair bill that only maintai …