Cash Management Question: Download Cash Management PDF
Can you please explain the difference between revenue expenditure and its treatment in accounts?
Answer:
The nature of some expenses is such that though they do not create an asset but their benefit is spread over more than one accounting period. These are mostly non-recurring and large in amount.
In such circumstances instead of debiting the entire amount of these expenses to Profit and Loss of the year, it may be spread over a number of years with a
proportionate amount being charged each year to P&L Account.
The portion that is still not charged to Profit and Loss is shown in the balance sheet on the asset side after Capital Work in Progress and is called
Deferred Expenditure.
Examples are Expenses incurred to start a business, Initial marketing cost to launch a product etc.
In such circumstances instead of debiting the entire amount of these expenses to Profit and Loss of the year, it may be spread over a number of years with a
proportionate amount being charged each year to P&L Account.
The portion that is still not charged to Profit and Loss is shown in the balance sheet on the asset side after Capital Work in Progress and is called
Deferred Expenditure.
Examples are Expenses incurred to start a business, Initial marketing cost to launch a product etc.
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