What are capital expenditures and cost expenditures?

Capital expenditures.

Symmetry of revenue or cost expenditure. It refers to the expenditures incurred by the enterprise unit, its benefits and in two or more fiscal years, including the constituent fixed assets.

Intangible assets, deferred assets.

of expenditures. For example, the expenditure on the acquisition of transport equipment, since the transport equipment can be used for several years, should be charged to the "Fixed assets" account. The expenditure of transportation equipment shall be amortized to the costs and expenses of each year through depreciation according to the degree of wear and tear.

This accounting treatment is called depreciation or amortization. The method of recording expenditures as assets is referred to as capitalization. Capital expenditures are different from cost expenditures, which are made up of operating income in each beneficiary year.

The burden is shared, and the latter is fully compensated by the operating income of the current year. The distinction between capital expenditure and cost expenditure is to correctly reflect the value of the asset and to correctly calculate the profit and loss for each year. If capital expenditure is regarded as revenue expenditure, the result is that the value of assets is undercounted, the expenses of the current year are overcounted, and the profits of the current year are inflated. On the contrary, the value of assets is overcounted, the expenses of the current year are undercounted, and the profits of the current year are inflated.

In practice, in order to simplify the accounting treatment, sometimes the capital expenditure of less than a certain amount is also treated as a cost expenditure.

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1. Capital expenditure refers to the expenditure with a benefit period of more than one year or a business cycle, that is, the expenditure is incurred not only to obtain the income of the current period, but also to obtain the income of the subsequent periods.

2. Revenue-generating expenditure refers to the expenditure with a benefit period of no more than one year or one business cycle, that is, the expenditure is incurred only for the purpose of obtaining the current income; Capital expenditure is the expenditure that is made solely for the purpose of generating current earnings.

3. The principle of dividing capital expenditure and benefit expenditure requires that capital expenditure and revenue expenditure should be distinguished in the accounting first, and then the revenue expenditure should be included in the expense account and included in the profit and loss statement as current profit or loss; Capital expenditures are recorded in the asset account and included as assets on the balance sheet. The former is called expense-to-expense; The latter is called expenditure capitalization. Capitalized expenditures are gradually converted into expenses through transfer, depreciation and amortization according to the benefit principle and consumption ratio as the assets are consumed in each period.

4. From this point of view, the expenses related to the acquisition of the current income, i.e., the costs and expenses of the current period, are, first, the revenue expenses directly included in the expense account; The second is the capital expenditure transferred from the asset account to the expense account in the current period. It can be seen that the purpose of capital expenditure and revenue expenditure is to reasonably determine the nature of cash expenditure and correctly calculate the current profit in accordance with the requirements of the accrual basis and the matching principle.

5. Capital expenditure includes expenditure on fixed assets, intangible assets and deferred assets. For example, the expenditure on the purchase of transportation equipment, since the transportation equipment is to be used for many years, its expenditure should be recorded in the "fixed assets" account, and the expenditure on transportation equipment shall be depreciated annually according to the degree of wear and tear, and the cost shall be amortized, and the method of recording the expenditure in the asset shall be called assetization. It is shared by the operating income of the beneficiary year, which is fully compensated by the operating income of the current year.