Week 2 CheckPoint Reflection
During the useful life of a plant asset, a company may incur costs for ordinary repairs, additions, or improvements (Weygandt, Kimmel, & Kieso, 2010, p. 409). Costs incurred for ordinary repairs are considered revenue expenditures. Costs incurred for additions and improvements are considered capital expenditures.
Companies incur revenue expenditures to maintain the operating efficiency and productive life of an asset. Usually these are fairly small costs that occur frequently. Examples of revenue expenditures are: Oil changes and tune-ups, maintenance charges, repair costs, renewal expenses, and repainting costs. Companies record the entry of revenue expenditures as a debit to Repair or Maintenance Expense as they are incurred, and a credit to cash or accounts payable (Weygandt, Kimmel, & Kieso, 2010).
Companies incur capital expenditures to increase the operating efficiency, productive capacity, or useful life of an asset. Usually these are rather big costs that occur infrequently. Examples of capital expenditures are: Purchase costs, delivery costs, legal charges, installation costs, replacement costs, construction costs, and demolition cost. Companies generally record the entry of a capital expenditure as a debit to the Plant Asset affected, and a credit to cash or accounts payable. Land Improvements, Building, and Equipment all depreciate over the useful life of the asset; land is the exception and it does not depreciate.
To review; revenue and capital expenditures are both classified as an asset beyond that there are not many similarities. The differences on the other hand are far more abundant. Capital expenditures are included in the cost of fixed assets and are recorded on a company’s income statement. Whereas revenue expenditures are not included in the cost fixed assets and are recorded on a company’s balance sheet.