Accountancy · Chapter 6
Study notes aligned to the official NEB syllabus.
Capital goods/items are used to make finished products for a company. These are not finished goods but they serve as input for producing finished goods in a firm. These items have long term effects for business, normally more than one year, and they affect the Balance Sheet of the business.
Revenue items are those types of items that have short term effect on business, normally less than one year. These types of items are recurring, repeating nature items.
| Basis | Capital items | Revenue items |
|---|---|---|
| Nature | Generally capital items are of non recurring nature. | Generally, revenue items are of recurring nature. |
| Purpose | Capital items are meant for increasing the financial strength and earning capacity of the business. | Revenue items are meant for determining the operating result of the business. |
| Benefit | It gives benefit over a number of years. | It gives benefit till one year. |
| Accounting treatment | Capital items are represented in the balance sheet in terms of assets, capital and liabilities. | Revenue items are represented either in the trading account or in the profit and loss account. |
Capital and revenue items are classified as follows: