Fixed Assets Essay

Expenditure on fixed assets can be divided into capital expenditure and revenue expenditure. Capital expenditure includes costs incurred to get a fixed asset and any subsequent expenditure that increases the earning capacity. The cost of get a fixed asset not only includes the cost of purchases, it also includes additional costs incurred in bringing the fixed asset into its condition. Take for example, a delivery costs. Capital Expenditure was include the purchase costs that less any discount received, installation costs, delivery costs, replacement costs, legal charges, and up gradation costs. Capital expenditure will increase in the fixed assets, so the accounting entry is as:
Debit Fixed assets Credit Cash/Payable
Not only

Expenses represent value leaving the company. But when you bought that truck, you didn't lose $35,000 in value. You just traded $35,000 worth of cash for $35,000 worth of truck. That's why the truck goes on the balance sheet as an asset rather than on the income statement as an expense. Over time, depreciation will reduce the value of the asset on your books. If you depreciate the truck evenly over 10 years, then you'd record a $3,500 expense each year, and the book value of the truck would fall to $31,500 after one year, then $28,000 after two years, $24,500 after three, and so on. Value's leaving the company as the truck

So if the capital expenditure and revenue expenditure was wrongly record in the accounting report, the amount of balance sheet was still can balance, but the balance amount will be not same. We have to understand that capital expenditure will increased the amount of fixed assets, while the revenue expenditure will increased the expenses and then decreased the profit. When a capital expenditure is treated as revenue expenditure, mistakenly booking a capital expenditure as revenue expenditure will affects the expenditure, asset and depreciation accounts. The initial journal entry overstates expenses and understates assets. For instance, a capital asset purchase journal entry debits an asset account and credits cash. A mistaken take the revenues expenditure journal entry debits expense and credits cash. Capital assets are also depreciated on a regular basis, so incorrectly classifying an asset understates depreciation expense over time. It will decrease the profit and the total balance amount will decreased