✅ Types of Expenditure in Accounting

Expenditure refers to any payment or incurrence of a liability by a business in the process of earning revenue or acquiring assets. It can be broadly classified into four main types:

1️⃣ Capital Expenditure

✅ Definition:
Expenditure incurred to acquire or improve a long-term asset (fixed asset) that will provide benefits over multiple accounting periods.

✅ Examples:

• Purchase of machinery or vehicles

• Building construction

• Major upgrades that increase asset life or value (e.g., engine replacement)

✅ Accounting Treatment:
Recorded as an asset in the balance sheet and depreciated over its useful life.

2️⃣ Revenue Expenditure

✅ Definition:
Expenditure incurred for day-to-day operations or to maintain existing assets. It is consumed within the current accounting period.

✅ Examples:

• Repairs and maintenance

• Wages and salaries

• Rent, electricity, fuel

• Stationery and office supplies

✅ Accounting Treatment:
Charged directly to the Profit and Loss Account in the same accounting period.

3️⃣ Deferred Revenue Expenditure

✅ Definition:
A large revenue expenditure that, although not capital in nature, is expected to provide benefits over multiple periods. It is initially recorded as an asset and written off gradually.

✅ Examples:

• Heavy advertising campaigns for a product launch

• Preliminary expenses for company setup

• Research and development costs (in some cases)

✅ Accounting Treatment:
Shown as an asset initially, and amortized over a few years (usually 3–5 years).

4️⃣ Contingent Expenditure

✅ Definition:
A possible expense that may arise depending on the outcome of a future uncertain event. It is not recorded as an actual expense until the event happens.

✅ Examples:

• Legal damages if the company loses a lawsuit

• Warranty claims or guarantees that may or may not occur

✅ Accounting Treatment:
Disclosed in notes to the financial statements (as a contingent liability) but not recorded in the accounts until confirmed.

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