EXPENSES MAINTAINANCE Assignment Help & Online Tutoring

Capital expenditure buys, improves or extends the life of a long-term asset and benefits more than one year, so it is recorded as an asset and depreciated. Revenue expenditure covers day-to-day running costs and routine maintenance, and is charged as an expense in the year it is incurred, reducing profit for that year.

Routine repairs and maintenance that keep an asset in its existing working condition are revenue expenditure and are charged to the income statement. If spending improves the asset, increases its capacity or extends its useful life, such as replacing an engine or adding a floor, it is capital expenditure and is added to the asset's cost.

An outstanding expense, also called an accrued expense, is an expense that relates to the current accounting period but has not yet been paid, such as unpaid wages or rent for the last month. It is added to the expense in the income statement and shown as a current liability in the balance sheet.

A prepaid expense is an amount paid in advance for a benefit that relates to a future period, such as insurance or rent paid for next year. The prepaid portion is deducted from the expense in the income statement and shown as a current asset in the balance sheet until the benefit is used.

Debit the expense account and credit the outstanding expense account. For example, if March rent of 1,000 is unpaid at 31 March, the entry is debit rent 1,000 and credit outstanding rent 1,000. When the rent is paid later, debit outstanding rent and credit cash or bank.

Debit the prepaid expense account and credit the expense account with the amount relating to the next period. For example, if 2,400 of insurance covers the next six months, debit prepaid insurance 2,400 and credit insurance 2,400. Next year, the prepaid amount is transferred back to the insurance expense.

A petty cash book records small, everyday cash payments such as postage, stationery, travel and refreshments. An analytical petty cash book has a total column and separate columns for each type of expense, so totals can be posted easily to the right ledger accounts at the end of each period.

Under the imprest system, the petty cashier receives a fixed float at the start of each period. At the end of the period, the main cashier reimburses exactly the amount spent, restoring the float to its original level. This makes it easy to check cash in hand and controls small payments.

Deferred revenue expenditure is a large revenue expense whose benefit is expected to last for several years, such as a heavy advertising campaign, so it was traditionally spread over those years. Under current accounting standards such as Ind AS and IFRS, most of these costs must be expensed immediately, so check what your syllabus follows.

If capital spending is wrongly treated as an expense, profit is understated and assets are understated. If revenue spending is wrongly capitalised, profit and assets are overstated. Both errors mislead users of the accounts, affect tax calculations and can break accounting standards, so classification is tested often.

Expense records should be supported by invoices, receipts, payment vouchers, bank statements, petty cash vouchers, contracts and approval records. Each document should show the date, amount, supplier and purpose. Good documentation supports audits and tax claims and helps prevent errors and fraud.

The accruals or matching concept states that expenses and income should be recorded in the period to which they relate, not when cash is paid or received. It is why outstanding and prepaid expenses are adjusted at year end, so the income statement shows the true cost of earning that period's revenue.

Capital and revenue expenditure, subsidiary books and year-end adjustments appear in CBSE Class 11 and 12 Accountancy, B.Com and BBA financial accounting, CA Foundation accounting, and introductory accounting courses worldwide. UK and US courses usually say accrued and prepaid expenses rather than outstanding and prepaid.

Yes. An accounting tutor explains the rules for classifying expenditure, shows how to make journal entries and year-end adjustments, and helps you prepare financial statements correctly. You complete your own work during the session, so you understand each entry for exams and stay within your course's academic integrity rules.