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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Which of the following is a feature of revenue expenditure?

Revenue expenditure is incurred to maintain the earning capacity of the business, and its benefit is exhausted within the current accounting year. It is therefore charged to the Profit and Loss Account. Expenditure giving long-term benefit or acquiring assets is capital expenditure.

  1. AIt provides benefit over several accounting years and appears in the Balance Sheet
  2. BIt is incurred to maintain earning capacity and its benefit is exhausted within the current yearCorrect
  3. CIt is incurred to acquire a long-term asset
  4. DIt increases the earning capacity of the business permanently

Explanation

Revenue expenditure is incurred to run the business and keep assets in working order, and its benefit is used up in the same year. It is charged to the Profit and Loss Account. The other options describe capital expenditure.

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