Questions and Answers
What is the primary difference between capital items and revenue items in terms of the duration of their benefits?
Capital items benefit the business over a long period of time (more than one accounting period), while revenue items benefit the business for a short period of time (within one accounting period).
What are the three key characteristics of capital items?
Non-recurring, Material, and Long-term.
Provide an example of a capital item and explain why it is classified as such.
The purchase of a building is a capital item because it benefits the business over multiple accounting periods and is a significant investment.
What is the main characteristic that distinguishes revenue items from capital items in terms of frequency?
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How do the benefits of revenue items differ from those of capital items?
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Provide an example of a revenue item and explain why it is classified as such.
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Study Notes
Capital Items vs. Revenue Items
Definition and Classification
- Capital Items: Expenditures that benefit the business over a long period of time (more than one accounting period).
- Revenue Items: Expenditures that benefit the business for a short period of time (within one accounting period).
Characteristics of Capital Items
- Non-recurring: Incurred infrequently, such as purchasing a building or equipment.
- Material: Significant in amount, such as a large investment in new technology.
- Long-term: Benefits the business over multiple accounting periods.
Examples of Capital Items
- Purchase of land, buildings, or equipment
- Investments in other companies
- Patent or copyright development costs
- Start-up costs (e.g., business registration, legal fees)
Characteristics of Revenue Items
- Recurring: Incurred regularly, such as salaries or rent.
- Immediate benefit: Benefits the business within one accounting period.
- Minor: Relatively small in amount, such as office supplies.
Examples of Revenue Items
- Salaries, wages, and benefits
- Rent, utilities, and insurance
- Office supplies and expenses
- Advertising and marketing costs
Capital Items vs. Revenue Items
Definition and Classification
- Capital items are expenditures that benefit the business over a long period of time (more than one accounting period).
- Revenue items are expenditures that benefit the business for a short period of time (within one accounting period).
Characteristics of Capital Items
- Capital items are non-recurring, incurred infrequently.
- They are material, significant in amount.
- They provide benefits over multiple accounting periods, long-term.
Examples of Capital Items
- Purchase of land, buildings, or equipment.
- Investments in other companies.
- Patent or copyright development costs.
- Start-up costs, such as business registration, legal fees.
Characteristics of Revenue Items
- Revenue items are recurring, incurred regularly.
- They provide immediate benefits within one accounting period.
- They are minor, relatively small in amount.
Examples of Revenue Items
- Salaries, wages, and benefits.
- Rent, utilities, and insurance.
- Office supplies and expenses.
- Advertising and marketing costs.
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