Capital and revenue transactions

Notes

Capital and revenue transactions

Capital transactions

relate to costs incurred that will affect the entity in the long term, i.e. more than a year.

  • For example:
    Purchases of non-current assets such as buildings, plant and machinery

  • Any subsequent expenditure which enhances or improves an asset (such as an extension to a factory to improve its production capability) should also be treated as a capital transaction.

  • Capital costs or capital expenses will not be included as an expense in the statement of profit or loss but as a non-current asset in the statement of financial position.

Revenue transactions

relate to expenses that will only affect the entity in the current accounting period.

  • For example:
    Wages, rent payable and vehicle running costs

  • Revenue expenses will be included as expenses in the statement of profit or loss and not in the statement of financial position.

Capital transactions = statement of financial position

Revenue transactions = statement of profit or loss

Notes