Capital and Revenue

Profit = Receipts – Expenses

- Periodicity concept
- Matching concept
- Accrual concept

while determining profit / loss made

during a particular period, all incomes relating
to that period (whether received or not) are to
be compared with the expenditure relevant to
such income (whether actually paid or not)
 Income
1. Capital income (gain)
Income which does not grow
out of or pertain to the running
of the business proper
2. Revenue Income (profit)
Income which arises out of
and in the course of regular
business
 Expenditure
1. Capital expenditure
Incurred for the purpose of obtaining a
long term advantage for the business
2. Revenue expenditure
Expenses which arises out of and in the
course of regular business
3. Deferred Revenue expenditure:
Revenue exp incurred during an
accounting period but is applicable
wholly or in part to future periods
 Capital Vs Revenue
 Repairs
 Wages
 Legal charges
 Transport charges
 Interest on capital
 Raw materials and stores
 Development expenditure
 Advertising
 Preliminary expensus
 Receipts
1. Capital Receipt
Additional payments made to
the business by the owner or
receipts from the sale of
business assets
2. Revenue Receipt
Any receipt which is not a
capital receipt