Expenditure Money spent or liability incurred for acquiring goods or services or assets is called expenditure. Thus, expenditure is a payment for a benefit received.

Examples: Payment of rent, salary, purchase of goods, purchase of land, machinery, furniture, etc.

Types of Expenditure

Capital Expenditure

1. Meaning	It is an expenditure which is incurred: (a) to acquire or bring into existence an asset, or (b) to acquire or bring into existence an advantage or benefit of an enduring nature, or          (c) to increase the productivity or earning capacity.
2. Benefits	It yields benefits beyond the current accounting period.
3. Accounting Treatment	It is debited to the Respective Asset Account They are shown on the assets side of the Balance Sheet
4. Examples	(a) Cost of Land and Building (b) Cost of Plant and Machinery (c) Cost of Furniture and Fixtures

Revenue Expenditure

1. Meaning	It is an expenditure which is incurred:  (a) the benefit of which is consumed or exhausted within the accounting period and (b) to maintain the productivity or earning capacity of a business.
2. Benefits	It does not yield benefits beyond the current accounting period.
3. Accounting   Treatment	It is debited to the Respective Expense Account In the case of proprietorship or partnership enterprises, they are shown on the debit side of the Trading or Statement of Profit and Loss Account In the case of Not-For-Profit Organizations, it is shown on the debit side of Income and Expenditure Account
4. Examples	(a) Depreciation on Land & Building (b) Rent of Building  (c) Repairs of Building (d) Insurance of Building (e)Salaries (f) cost of goods sold (g) advertisement expenses

Deferred Revenue Expenditure

1. Meaning	Deferred Revenue Expenditure is a revenue expenditure in nature but is written off (charged) in more than one accounting period
2. Benefits	because it is estimated that the benefit of such expenditure will accrue in more than one financial year.
3. Accounting   Treatment	They are shown on the assets side of the Balance Sheet
4. Examples	Heavy advertising to launch a new product is a deferred revenue expenditure since the benefit from it will be availed over the next 3 to 5 years

Test Your Knowledge

……………………expenditure yields benefit over a long period of time to the business entity.

Capital

Exercise

Q1.  The cost of installation of plant and machinery is a …………………..      expenditure.

Capital

Q2. Payment of salary to an employee is a capital/ revenue expenditure

Revenue

Q3.  Heavy advertisement incurred for launching a new product in the market is revenue/ deferred revenue expenditure

Deferred Revenue Expenditure