Capital and revenue as regards to expenditure

There is no proper distinction between capital and revenue as regards to expenditure, payment, profits, receipts, and losses, is one of the fundamental principles of correct accounting. it is very essential that in all cases this distinction should be rigidly observed and amounts rightly allocated between capital and revenue. Failure or neglect to discriminate between the two will falsify the whole of the results of accounting. for example, plant may be purchased and charged to the purchase account; additions may be made to the premises and debited to the repair account; some of the fixed assets may be sold and the proceeds treated as profit. In each case both the profit and loss account and Balance sheet would be inaccurate and misleading. These and similar mistake are easily made and if undetected would soon render the accounting useless as a record of financial results. As all revenue items go to the trading and profit and loss account and all capital items to the balance sheet , it is necessary that the proper distinction should be made between capital and revenue while preparing the final accounts of a business at the end of a trading period.

It is very difficult to give a clear cut rule as to distinction between the capital and revenue expenditure. how ever we try to clear such concept in the next pages and keep reading it.