Theory question 102
Final Accounts of a Sole Trader(a) List six adjustments that are shown in the final accounts.
(b) State three differences between capital expenditure and revenue expenditure.
Show the model answer
(a) Any six: closing stock; accrued expenses; prepaid expenses; accrued income; income received in advance; depreciation; bad debts written off; provision for doubtful debts; provision for discounts; drawings of goods; correction of errors.
(b) Any three:
- Capital expenditure buys or improves fixed assets; revenue expenditure is the day-to-day running cost (or maintenance) of the business.
- Capital expenditure benefits several years; revenue expenditure benefits only the current year.
- Capital expenditure appears in the balance sheet (real account); revenue expenditure is charged to the trading/profit and loss account (nominal account).
- Capital expenditure is usually large and non-recurring; revenue expenditure recurs regularly.
- Capital expenditure increases earning capacity; revenue expenditure maintains it.
Six adjustments, then three clear contrasts.