The importance of the distinction between Revenue Expenditure and Capital Expenditures

The importance of the distinction between Revenue Expenditure and Capital Expenditures





The importance of the distinction between Revenue Expenditure and Capital Expenditures

Order to achieve the established result of the activity of the profit or loss during the financial period, the accounts must be the result of all downloadable Revenue Expenditure pertaining to the financial period and must also show capital expenditure budget established at the end of the financial period.

The effect of mixing and non-discrimination between Revenue Expenditure and capital expenditure preparation of financial statements misleading and incorrect, if the accounts of the outcome will not reflect properly the result of the establishment activity of the profit or loss during the financial period and that the budget will not give a true and clear information on the financial position of the the end of that period is evident from the following:



In the case of addressing some of the Revenue Expenditure as capital expenditures are added to the value of the asset instead of loading the accounts of the result would entail the following:

* Inflate the profits of the facility and therefore part of that profit represents the profit picture has not been achieved and if the distribution of dividends to shareholders, the part of those distributions have been established of the capital, while the generally accepted accounting principles require the imperative of maintaining capital intact.

* Inflate the tax base due to undergo sham tax profits to the detriment of the financial status of the facility.



In the case of addressing some of the capital expenditure as expenditure charged to the accounts Aiardip the result rather than to add value to the original budget would entail the following:

* Reduce the profits of the enterprise or the emergence of the largest financial loss for the period from the truth if the result of activity loss.

* Reduce the tax base may occur deliberately in order to evade payment of taxes or in order to create a secret or hidden reserves, both inconsistent with generally accepted accounting principles



.

Consequently, the accountant's mind the importance of the distinction between Revenue Expenditure and Capital Expenditures In fact, there are no boundaries to distinguish between them, but some can put the foundations for guidance in this regard.