1. B.Sc.in HOSPITALITY
and Hotel
ADMINISTRATION
(B.Sc. In H&HA)
Accountancy
Sem 2 nd

3. CLASSIFICATION OF EXPENDITURE
Expenditure can be classified into three categories:
Capital Expenditure
Revenue Expenditure
Deferred Revenue Expenditure
Capital expenditure: Capital expenditure is that
expenditure which result in acquisition of an asset and
can later be sold and converted into cash or which
results in an increase in the earning capacity of a
business. Another test of a capital expenditure is that
the benefit of such expenditure lasts for a long period of
time.

4. Following are some of the examples of capital expenditure:
a) Cost of fixed or permanent assets, such as lands,
buildings, machinery, patent rights, vehicles, furniture,
loose tools, etc., purchased for use in business are capital
expenditure.
b) Cost of additions or extensions to existing fixed assets,
such as costs of addition to machinery, costs of
extensions to buildings, etc., are capital expenditure.
c) Any expenditure incurred in connection with the
acquisition, (i.e., purchase) of fixed assets is a capital
expenditure. For example, legal charges and brokerage
paid for acquiring land and buildings are capital
expenditure.
d) Any expenditure incurred in bringing the assets
purchased to the business is a capital expenditure. For
example, carriage or freight paid for bringing the
machinery purchased is a capital expenditure.

5. e) Any expenditure incurred in installing the fixed assets is
a capital expenditure. For example, charges incurred on the
erection of machinery or charges incurred in the fixing of
fans are capital expenditure.
f) Any expenditure incurred on the alternations and
improvements of existing fixed assets so as to increase
their income earning capacity is treated as a capital
expenditure. For example, a large amount spent on a
useless machine so as to make useful is treated as capital
expenditure because it increases the revenue earning
capacity of the fixed asset.
g) Development expenditure (i.e., amount spent on an
asset before it has started yielding) is a capital expenditure.
For instance , amount spent on a tea estate or rubber
estate before, it has started yielding is a capital
expenditure.

6. REVENUE EXPENDITURE: An expenditure that arises out of
and in the course of regular business transactions of a
concern is termed as revenue expenditure. In other words,
expenses whose benefit expires within the year of
expenditure and which are incurred to maintain the earning
capacity of existing assets are termed as revenue
expenditure. These expenses are recurring in nature.
Following are few examples of revenue expenditure:
a) Cost of goods purchased for resale is revenue
expenditure.
b) Expenses, such as carriage, freight, etc., incurred in
bringing the goods purchased to the place of business are
revenue expenditure.
c) Cost of material consumed in the manufacture of goods
for meant for resale is revenue expenditure.

7. d) Expenses incurred in manufacturing goods for resale are
revenue expenditure, e.g., wages, power, factory rent,
insurance, factory heating, etc.
e) Expenses incurred for the day-to-day management of the
business are revenue expenditure, e.g., salaries, rent, law
charges, bank charges, printing and stationery, postage and
telegrams, etc.
f) Expenses incurred for selling the products are revenue
expenditure, e.g., advertisement, commission paid, carriage
outward, bad debts, etc.
g) Any expenditure which is incurred for maintaining the
fixed assets in good working order or condition is revenue
expenditure, i.e., repairs, replacements and renewals of
fixed assets.
h) Interest on loan borrowed, interest on deposits accepted,
interest on capital, discount allowed, etc., are revenue
expenditure.

8. DIFFERENCES BETWEEN CAPITAL EXPENDITURE AND REVENUE EXPENDITURE
S. No. CAPITAL EXPENDITURE REVENUE EXPENDITURE
1. Capital expenditure is incurred Revenue expenditure is incurred
for acquiring fixed assets intended for acquiring or producing goods
for use in the business, and not for meant for sale.
resale.
2. Capital expenditure is incurred Revenue expenditure is incurred
for extending or improving the for maintaining the fixed assets
existing fixed assets. in a good working order.
3. Capital expenditure adds to the Revenue expenditure does not
revenue earning capacity of a add to the revenue earning
concern. capacity of a concern.
4. The benefits of capital expenditure Revenue expenditure will
extend to more than one year. decrease the value of net assets.
5. Capital expenditure will increase The benefit of revenue
the value of net assets. expenditure is confined to only
6. Capital expenditure is non- one year.
recurring. Revenue expenditure is
7. Capital expenditure will go to the recurring.
Balance sheet. Revenue expenditure will go to
the Trading Account or Profit
and Account.