Theory Base of Accounting | Class 11 Accountancy Notes

Capital and Revenue Expenditure and Receipts

Expenditures and receipts in accounting are classified into capital and revenue types based on their nature and effect on the business. Capital expenditure refers to expenses incurred to acquire or improve fixed assets that benefit the business for more than one accounting period. Examples include purchase of land, building, machinery, or major repairs that increase the asset’s value. Capital receipts are inflows of funds that either create a liability or reduce an asset, such as loans received or sale of fixed assets. Revenue expenditure refers to expenses incurred for the day-to-day running of the business and are charged fully to the profit and loss account in the period they occur. Examples include rent, wages, repairs, and utility bills. Revenue receipts are inflows from the normal business operations like sales revenue or interest received. Correct classification is important as capital items affect the balance sheet, while revenue items affect the profit and loss account.

🧪 Activity: No specific activity in this section.

🔗 Connection: This section concludes the theoretical base of accounting and connects to practical applications in recording and reporting financial transactions.