Capital and Revenue Transactions

CAPITAL AND REVENUE TRANSACTIONS

Introduction

The main objective of accounting of business transactions is to ascertain the results of operations and the financial position of the business concern. The transactions carried on may yield benefit only for the current accounting period or they may yield benefit for more than one accounting period. According to matching principle, the expenses incurred in the current accounting period must be matched with the revenues earned during that period.

In case of certain expences, the benefit accrues only in the relevant accounting period. They are called revenue expenditrues. For example, salaries, rent, etc. But in case of certain expenditrues benefit extends beyond one accounting period. They are called capital expenditrues.

To exhibit a true and fair view of profitability and state of affairs, proper allocation of capital and revenue items is required. The revenue items are to be shown in the trading and profit and loss account and capital items are to be shown in the balance sheet.