What Is a Capital Charge?
Capital expenditure refers to the benefits of property or labor services obtained through it, which can be given to those expenditures incurred in multiple accounting periods. Therefore, such expenditures should be capitalized, first included in the asset category, and then transferred to the appropriate expense account in stages based on the benefits obtained.
Capital expenditure
- Corresponding to capital expenditure is
- Conceptual distinction
- Capital expenditure is
- Correctly dividing the boundary between profitable expenditures and capital expenditures is of great significance in accounting work. It affects the quality of accounting information and is related to whether the financial status of accounting entities and the calculation of financial results are true and reliable. The boundary between expenditure and capital expenditure can truly reflect the financial status of the enterprise and correctly calculate the current operating results of the enterprise.
- Revenue expenditures refer to expenditures incurred in the current period that are only related to the current period's revenue and should be compensated for in the current period's realized revenue; capital expenditures refer to the occurrence of such expenditures not only related to the acquisition of current period's income, but It is related to the income of other accounting periods, or it is mainly the expenditures incurred to obtain income for subsequent accounting periods. For example, the expenditures incurred to obtain fixed assets and intangible assets are usually related to multiple accounting periods. Amortized expenses shall be included in each accounting period in stages so that the income and expenses match.
- According to the principle of dividing profitable expenditures and capital expenditures, enterprises are required to distinguish between two types of expenditures when recognizing expenditures in accounting, and include revenue expenditures in the income statement and in the current profit and loss to correctly calculate the current period of the enterprise. Economic results; capital expenditures are listed on the balance sheet as a reflection of assets to truly reflect the financial status of the enterprise. Whether each expenditure is a revenue expenditure or a capital expenditure is usually based on the length of the period in which the expenditure is benefited.
- A certain expenditure of an enterprise must be in order to obtain a certain income, but the benefit period of an expenditure may be only this period, or there may be multiple accounting periods. If the employee's salary is paid, the employee who pays one month's salary usually works for one month, and the income period of the employee's salary is only the current period. However, if a piece of machinery and equipment is purchased, if the equipment can be used for 5 years, the benefit period of the equipment will generally be 5 years. Generally, the benefits of expenditures are only related to the current fiscal year. Therefore, the expenditures that should be compensated for the income realized in the current fiscal year are called revenue expenditures; while the benefits of expenditures are related to multiple fiscal years, so Expenditures that are gradually compensated for the annual realized gains are called capital expenditures.
- According to the principle of matching, all profitable expenditures should be used as expenses for the current period, while capital expenditures should be used as expenses for multiple accounting periods in a certain proportion (standard). It can be seen that strictly dividing the boundary between profitable expenditures and capital expenditures is an important basis for correctly calculating the current profit and loss of an enterprise.