YEAR 11 ACCOUNTINGYEAR 11 ACCOUNTING

CAPITAL EXPENDITURECAPITAL EXPENDITUREREVENUE EXPENDITUREREVENUE EXPENDITURE

EXPENDITUREEXPENDITURE

There are TWO kinds of expenditure:There are TWO kinds of expenditure:

Capital ExpenditureCapital Expenditure Revenue ExpenditureRevenue Expenditure

CAPITAL EXPENDITURECAPITAL EXPENDITURECapital ExpenditureCapital ExpenditureExpenditure that creates an asset or improves an asset.

Does extra spending in Asset affect Owner’s Equity

NO, Capital Expenditure does NOT affect Owner’s Equity

Capital Expenditure Capital Expenditure cont’dcont’dCapital Expenditure includes:Capital Expenditure includes:

Purchase of a property, plant and equipment Purchase of a property, plant and equipment (for example: buying a new computer)(for example: buying a new computer)

Improvements to assets to increase its Improvements to assets to increase its performance or extend its useful life (for performance or extend its useful life (for example: installing extra RAM to increase its example: installing extra RAM to increase its performance)performance)

Capital Expenditure Capital Expenditure cont’dcont’dThe cost of capital expenditure includes:The cost of capital expenditure includes:

Cost of Fixed AssetCost of Fixed Asset Delivery Cost from the suppliers to the Delivery Cost from the suppliers to the

businessbusiness Insurance while transitInsurance while transit Installation cost – including labourInstallation cost – including labour Materials in trial runsMaterials in trial runs Any other costs that get the asset into Any other costs that get the asset into

performance state. performance state.

REVENUE EXPENDITUREREVENUE EXPENDITURERevenue Expenditure is any expenditure that:Revenue Expenditure is any expenditure that: Occurs for day-to-day operation.Occurs for day-to-day operation. Has a recurring nature (happens more Has a recurring nature (happens more than than once).once). Helps the entity to earn income from its Helps the entity to earn income from its assets (for example, spending on assets (for example, spending on petrol petrol helps to move the delivery vehicle).helps to move the delivery vehicle). Reduces EQUITY.Reduces EQUITY.

ExampleExampleFor a courier businessFor a courier businessPurchase of a delivery vehicleCapital

ExpenditureSign printed on delivery vehicle

Revenue Expenditure

Cost of installing new engine in the vehicle

Capital Expenditure

Petrol Revenue Expenditure

Another ExampleAnother ExampleFor a hairdresser businessFor a hairdresser businessInsurance of transiting new computer Capital

ExpenditureWages paid to hairdressers

Revenue Expenditure

Repairs to Equipment Revenue ExpenditureInstall a piece of

computer chip that fastens the cutting process

Capital Expenditure