Question

Which expenditure increases the earning capacity of the business?

• A. Revenue expenditure
• B. Capital expenditure
• C. Deferred revenue expenditure
• D. Prepaid expenditure

Answer 1

Answer:

B. Capital expenditure

EXPENDITURE:

• An expenditure represents a payment with either cash or credit to purchase asset, goods or services.

• Expenditure is a wider term than expense.

• The term expenditure Includes expenses also.

Expenditure can be classified into

• 1. Capital expenditure

• 2. Revenue expenditure.

CAPITAL EXPENDITURE:

• Capital expenditure refers to those expenditure which are incurred to acquire fixed assets and its benefit will last for long time.

• Capital expenditures are non-recurring in nature.

• Its main purpose is to increase the earning capacity of the business.

• Example: Amount spent to purchase fixed assets like land and building, P& M, Furniture, Goodwill, installation charges of machinery, repayment of bank loan (principal amount) etc.

REVENUE EXPENDITURE:

• The amount spent by the business to purchase goods and to its day-to-day expenses is called revenue expenditure.

• They are recurring in nature.

• Example: Payment of salary, rent, depreciation of fixed asset, purchase of goods/raw materials, payment of electricity charges