The foundations of the distinction between Revenue Expenditure and Capital Expenditures

The foundations of the distinction between Revenue Expenditure and Capital Expenditures





The foundations of the distinction between Revenue Expenditure and Capital Expenditures

So that the accountant to prepare a budget reflect honestly and fairly the financial position of the facility at the end of the financial period, as well as final accounts reflect properly the result of the establishment activity of the profit or loss during the financial period, it must take into account some scientific basis to guide when to differentiate between Revenue Expenditure and Capital Expenditures can be summarized that the scientific foundations recognized as follows:



1 - The purpose of alimony and their relationship to revenue:



Alimony is a sacrifice certain to be borne by the facility in exchange for a benefit or service and can distinguish between maintenance or resource and capital expenditure in accordance with the purpose in spending and the relevance of revenue, if the purpose of maintenance to achieve revenue during the financial period, it is the expense Iiardih But if the purpose of achieving income through more than one financial period, it is the expense Iiardih deferred means that there is a direct relationship between Revenue Expenditure and Revenue Expenditure deferred revenue incurred by the entity and if the purpose of maintenance access to the benefits or services utilized during periods of financial long they are considered the expense of capitalism as in the following cases:

* Buy a new fixed asset.

* Increased production capacity or efficiency of a fixed asset is and therefore there is a direct relationship between capital expenditure and revenue Thakha established.



2 - the use of the service:



If the benefit or service that you get by the establishment of maintenance prompt any relating to the current financial period, it is the expense Iiardih any is the use of their results during the current financial period and therefore the maintenance or resource exhausted during the financial period because of the benefit established them during that period and therefore must be charged to the income and if the benefit or service that you get established m alimony short-term that is established to benefit the most from one financial period, such as advertising campaigns large, it is the expense of Iiardih deferred and the part that benefit from the facility during the current financial period is the expense of Iiardip and the rest is deferred use.

If the benefit or service that you get by the establishment of long-term maintenance of any benefit established for a long period of time, it is the expense of capitalism.



3 - the frequency of maintenance:



Characterized by maintenance or resource iterates in each financial period, such as salaries and rent, and maintenance deferred capital expenditure not have a recipe repetition during the financial period other words, maintenance or resource repeated in most cases much greater than the maintenance or resource deferred capital expenditure, but this does not occur in absolute terms and in all cases, the treaty would have to spend the expense of non-duplicate any incidental, however, can be considered the expense of Iiardip such contributions that may be granted to some established charities.



4 - the value of spending and how it fits with Revenue:



There is no doubt that the value of maintenance and its relationship to revenue that results from it is one of the foundations of the distinction between alimony or resource and capital expenditure, if the value of maintenance commensurate with the revenue resulting therefrom which may be offset or covered by this revenue, it is the expense Iiardip, but if the value was relatively large so that not enough revenue Journal of the interview or coverage, it is a capital expense and therefore must be distributed to financial periods that benefit from its services.



5 - the nature of the activity of Establishment:



May determine the nature of the activity established the accounting treatment of the expense of the other words, the alimony may be Iiardip for a particular facility and capital for another facility, according to the nature of the activity established themselves buying a car is the expense of capital in commercial establishments while the expense Iiardip for the facility that traffic in them.



6 - the financial policy of the facility:



In some cases, may affect the financial policy of the facility to adapt the alimony, then, that some of the big firms might be considered some of the capital expenditures such as small calculators and writer expenditures Iiardip bear directly on the accounts of the result on the grounds that the relative importance of those costs low for the facility and although this contradicts the generally accepted accounting principles only by those that follow the way a continuous basis may be acceptable.