Adjustments for Financial Statements

Capital and Revenue Expenditure

Depreciation Bad Debts and Provision for Doubtful Debts

Accrual and Prepayments

Capital and Revenue Expenditures

Definition. Recording Process Correction of Errors

Capital Expenditure
Capital Expenditure is incurred when a business spends money either: Buy non-current assets, or Add to the value of an existing fixed asset

Example of Capital Expenditure

Acquiring Non-current Assets Bringing them into the business Legal costs of buying them Carriage inwards Other costs needed to get a noncurrent asset ready for use

Capital Expenditures:
Cost of the buildings RM100,000

Installation of Electricity RM25,000

Inspection

RM25,000 RM150,000

Revenue Expenditures
Expenditure which is not spent on increasing the value of fixed assets, but on running the business on a day-to-day basis, is known as revenue expenditure

Example of REVENUE Expenditures

Repairs and Maintenance Fuel Water and Electricity Road Tax

Assets v/s Expenses

Assets Balance Sheet

Expenses

Income Statement

The Effect of Expenses on Profit

Income Statement Revenues Expenses Profit 1,000 1,500 500 1,000 1,500 500 2,000 2,000

2,000

Example: A motor expenses of RM50 had been debited to the account of Motor Van
Motor Van 1/1/00 Balance b/d 10,000 9/7/00 Cash 50 31/12/00 Motor Exp 50

Motor Expenses 31/12/00 Motor Van 50

Particulars
Motor Van Capital Motor Exp

Trial Balance Debit

10,050 10,050

Adjustments

Adj Trial Bal

Credit

Debit Credit Debit Credit

50 10,000 10,050

50

50

TOTAL

10,050

10,050

50

50

10,050 10,050

Conclusions
Two types of expenditures:
Revenue Expenditures - Expenses Capital Expenditures - Assets

Wrong Classification Effect on Profit:

Higher Expenses - Lower Profits Lower Expenses - Higher Profits

EXERCISES is good for you