91Ó°ÊÓ

Revenue and Capital Expenditures Indicate whether each of the following expenditures is a revenue expenditure or a capital expenditure for Linda Company: a. Paid \(\$ 300\) to replace a truck windshield that was cracked by a stone thrown up by another vehicle while the truck was being used to make a delivery. b. Paid \(\$ 10\) for a "No Smoking" sign for the conference room. c. Paid \(\$ 900\) to add a hard disk to an employee's computer. d. Paid \(\$ 25\) for a dust cover for a computer printer. e. Paid \(\$ 280\) to replace a cracked windshield on a used truck that was just purchased for company use. The company bought the truck knowing the windshield was cracked. \(f\). Paid \(\$ 750\) for a building permit from the city for a storage shed the company is going to have built.

Step by step solution

01

Explain Revenue and Capital Expenditures

Revenue expenditures are costs that relate to the day-to-day business operations and are typically incurred within a single accounting period. These expenses are recorded on the income statement. Capital expenditures, on the other hand, are costs related to acquiring or improving long-term assets and typically offer benefits extending beyond a single accounting period. They are recorded on the balance sheet as an asset and depreciated over time.

02

Analyze Expenditure a

The cost of replacing a truck windshield ( $300 ) due to damage while delivering is considered a revenue expenditure. This is because it is a repair cost necessary to maintain the truck's operational efficiency in its existing state and benefits only the current period.

03

Analyze Expenditure b

The cost of a 'No Smoking' sign ( $10 ) for the conference room is a revenue expenditure. This is a small cost related to maintaining the office environment and doesn't provide a long-term benefit.

04

Analyze Expenditure c

The cost of adding a hard disk ( $900 ) to an employee’s computer is a capital expenditure. This expenditure improves the functionality and capacity of the computer, providing benefits over a span of multiple accounting periods.

05

Analyze Expenditure d

The cost of a dust cover for a computer printer ( $25 ) is a revenue expenditure. It is a minor cost associated with maintaining or protecting an asset without significantly extending its useful life.

06

Analyze Expenditure e

The expenditure of replacing a cracked windshield on a newly purchased used truck ( $280 ) is a capital expenditure. Since this repair is necessary to get the truck operational for its intended use, it is part of the truck's initial acquisition cost.

07

Analyze Expenditure f

The cost ( $750 ) for a building permit for a storage shed is a capital expenditure. It is directly related to the construction of a new building, offering future economic benefits.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Accounting for Expenditures

When studying accounting, understanding expenditures is crucial. Two main types of expenditures are revenue and capital expenditures.

• Revenue expenditures are often routine costs related to the daily operations of a business, such as repairs and maintenance. They are recorded immediately in the income statement, as they benefit the current accounting period only.
• Capital expenditures, on the other hand, are long-term investments for acquiring or improving fixed assets, like property or equipment. They provide benefits that extend over multiple periods and appear on the balance sheet as assets.

Knowing how to differentiate between these two allows for accurate financial reporting and informed decision-making.

Revenue Expenditures

Revenue expenditures include those small, regular costs that are directly tied to running a business day-to-day. Think of items like repairs to existing equipment or purchases that maintain operational flow. These expenditures are deemed expenses since they don't increase the business's long-term value but are essential for its ongoing activities. For example, spending $300 to replace a truck's windshield during a delivery is a prime example of a revenue expenditure because it's a maintenance cost that doesn't extend the asset's lifespan significantly.

Capital Expenditures

Capital expenditures (