Chapter No.
17 Capital and Revenue Transactions
Friends, we have done a chapter on Basic Accounting Terms
In which we have discussed about the words used in accounts
There were some Capital Expenditure, Capital Receipt,
Revenue Expenditure and Revenue Receipt
If those four are made into a chapter, then it becomes a
chapter on Capital and Revenue Transactions
In this, you have to understand the meaning of four things
and nothing else
And where they are posted and what is their accounting
treatment
For example, we have Capital Expenditure and Revenue
Expenditure
First, let's try to understand the meaning of these two
In simple words, and remember what I am saying, don't read
any theory and get stuck
Remember what I am saying
If any such expenditure has been done, expenditure means
expenditure
If any such expenditure has been done, which will give
benefit for more than one year, then it is Capital
Expenditure
And if any such expenditure has been done, which will give
benefit for less than one year, then it is Revenue
Expenditure
The benefit is for one year or less than that
The expenditure is done for one year or less than that
For example, you pay insurance premium for one year
That will become Revenue Expenditure
And it has only one treatment, the debit side is written in
P&L account
If the expenditure is like trading, then it will be written
in trading
It is related to trading
There is only one treatment, trading or debit side in P&L
But if any such expenditure has been done, which will give
benefit for more than one year
For example, a machinery has been bought, which will last
for five years
This will become Capital Expenditure
You have been told that buying machinery is an asset
Think with your heart, it is an expense
Where did the topic of asset come from?
It is an expense, yes sir
You have to make payment, yes sir
So, it is an expense, buying an asset is also an expense
So, what treatment will we do for this?
Suppose we bought a machine worth one lakh rupees, it will
last for five years
What will be the treatment for this?
When you buy, the debit side in P&L will record only the
expenditure of Rs.
Why? It is called a matching concept
The matching concept of accounts says that the expenditure
of one year has been done for five years
So, you divide one lakh by five and transfer the
expenditure of Rs.
20,000 to P&L
Do not put the entire expenditure of one lakh on the
shoulders of the P&L of one year
This is not the expenditure of one year, which you will
write in the entire expenditure of one year in P&L
So, it is the expenditure of five years
You have to write 20, 20, 20, 20, by 20 in five years
So, how much will be the debit side in the P&L account?
20,000 So, sir the remaining Rs.
80,000 will go to the balance sheet of the asset
Then, the next year, out of that 80, it will be in P&L of
the next year and there will be a balance sheet with 60 in
it
Then, next year, out of that 60, 20 will be in the P&L, in
the balance sheet there will be 40
Then, next year, out of that 40, 20 will be in P&L, in the
balance sheet there will be 20
And in the last 5 years, 20,000 will be in the P&L and in
the balance sheet it will be zero
I will write credit side in P&L.
A student gave me Rs.
1 lakh and said
I have to teach accounts for 5 years.
So I will write 20,000, 20,000, 20,000, 20,000, 20,000
credit side in P&L.
This time I said credit side.
And remaining Rs.
80,000, 60,000, 40,000, 20,000
I will write liability side in balance sheet.
Capital expenditure will have just opposite treatment of
capital receipt.
And revenue expenditure will have just opposite treatment
of revenue receipt.
Revenue expenditure, debit side in P&L.
And revenue income, revenue receipt, credit side in P&L.
Capital expenditure, proportionately debit side in P&L and
balance sheet asset side.
And capital receipt, proportionately credit side in P&L and
liability side in balance sheet.
If you remember this discussion for 4 minutes then you will
not get confused in capital expenditure, revenue
expenditure, capital receipt and revenue receipt.
Always do accounting properly.
Okay sir.
Thank you. Bye bye.