Capital and Revenue

Transactions
In order to correctly determine the accounting
profit for a period the concept of capital and
revenue is of utmost importance. The bifurcation of
the transactions between capital and revenue is also
necessary for the recognition of business assets at
the end of the accounting or financial year.

Important Terms

1. Capital Transactions

Capital transactions are transactions that have a

long-term effect on the business. It means that the
effect of these transactions extends to a period of
more than one year.
 2. Revenue Transactions

Revenue transactions are transactions that have a

short-term effect on the business. Usually, the effect
of these transactions is only for a period of one year.
 3. Capital Expenditure

Capital expenditure is the expenditure that a

business incurs on the purchase, alteration or the
improvement of fixed assets. For example, the
purchase of furniture for office use is a capital
expenditure. The fallowing costs are included in the
capital expenditure:

1. Delivery charges of fixed assets

2. Installation expenses of fixed assets

3. Alteration or improvement expenses of

fixed assets

4. Legal costs of purchasing a fixed asset

5. Demolition costs of fixed assets

6. Architects fee
 4. Revenue Expenditure

The expenditure incurred in the running or the

management of the business is known as the
revenue expenditure. For example, the cost of the
repairs of machinery is a revenue expenditure.

We need to show the Capital expenditure on the

Assets side of the Balance Sheet while we show the
Revenue expenditure on the debit side of the
Trading and Profit and Loss Account.

s. Revenue Receipts

The revenue receipt is the amount received by a

business against the revenue incomes.

6. Capital Receipts

It is the amount which is received against the capital

income by a business.